Data Suggests Jan Dhan Accounts Were Used for Money Laundering
The government is caught in a Catch-22 situation. On the one hand, banks appear to have been the biggest laundry for unaccounted cash, with 99.3% of demonetised currency having returned to the banking system. But, on the other, it now turns out that the Pradhan Mantri Jan-Dhan Yojana (PMJDY), which is touted as a ‘boon to the poor people’ of India, was an important route for laundering this cash and depositing it in banks. Many experts had warned that this would happen, especially after the Aadhaar linkage. We now have proof.
 
The sums deposited are staggering, as revealed by Right to Information (RTI) queries by Moneylife. United Bank of India alone has admitted to a gigantic deposit of Rs93.82 crore in a single Jan Dhan account. While this was, by far, the largest deposit, several nationalised banks have also admitted to deposits running into crores of rupees in Jan Dhan accounts. 
 
The largest single deposit in Bank of India was a hefty Rs3.05 crore; Union Bank of India admitted to Rs1.21 crore; Bank of Maharashtra to Rs98.45 lakh and Dena Bank admitted to Rs94.45 lakh as the highest deposit in a single account. This information is not complete. It pertains only to those public sector banks (PSBs) that bothered to respond to RTI queries. It is another matter that one bank now claims that it has converted the Jan Dhan account into a regular one. That and other issues is the subject of another article. 
 
Moneylife also sought information on the number of accounts with deposits of over Rs1 lakh. Of the 16 banks that provided this information, only Indian Bank appears to have been fairly circumspect in accepting large deposits. It had only 198 accounts with deposits of over Rs1 lakh. United Bank of India has 1.18 million Jan Dhan accounts with deposits of over Rs1 lakh. Union Bank of India had 0.32 million, Oriental Bank of Commerce had 0.28 million, Bank of Baroda 79,240 and IDBI Bank 68,147. 
 
 
The government has been emphatic in asserting that Jan Dhan accounts were aimed at financial inclusion and to provide basic banking facilities to unbanked Indians and a small insurance cover.
 
These accounts were for the very poor Indians who have no access to the formal banking system and need to be included so that subsidies and State benefits and pensions can be credited to their accounts without being gobbled up by corrupt intermediaries. 
 
With this objective, Jan Dhan accounts were allowed to be opened with just an Aadhaar card (which is an incomplete and unauthenticated identity proof) or job card issued under MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) duly signed by a government officer, or a letter issued by a gazetted officer accompanied by an attested photograph of the applicant. 
 
The Reserve Bank of India (RBI) also allowed these accounts to be opened on the basis of a self-attested photograph and a signature or thumb print (affixed in the presence of a banker). But account-holders with no identity needed to apply for some form of identification within 12 months and this low-level KYC (know your customer) would be valid for another 12 months thereafter. 
 
The PMJDY website makes it clear that there would be specific restrictions on such accounts. They cannot have aggregate credits of over Rs1 lakh in a year, or aggregate withdrawals of over Rs10,000 in a month. Importantly, the balance in the accounts cannot be more than Rs50,000 at any point of time. This is stated on the Jan Dhan website. However, such is the confusion and lack of clarity about these accounts, that one academic has been arguing that all restrictions on such accounts have been withdrawn. More on this later. 
 
Now consider this. The bulk of Jan Dhan accounts were opened in the massive drive that started after 15 August 2014 with banks resorting to all kinds of subterfuge and trickery to fulfil the stiff targets imposed by the government for opening such accounts. 
 
Jan Dhan was declared a spectacular success and even made it to the Guinness Book of World Records for most bank accounts opened in one week. Over 325.4 million accounts have been reported on the PMJDY website, at last count. 
 
It is not that the government was unaware that Jan Dhan accounts would be misused. Problems had surfaced soon after the scheme was launched. Speaking at a bankers’ conference on 24 May 2016, RBI’s then deputy governor SS Mundra had said that Jan Dhan accounts ‘very vulnerable’ to misuse for ‘money muling’. 
 
This was nearly six months before demonetisation was announced, when there were only around 220 million Jan Dhan accounts. He cited the specific case of a labourer in Punjab in whose account Rs1 crore was deposited, which came to light only when the income-tax (I-T) authority served a notice on the account-holder. 
 
On 5th September, the Business Standard (BS) reported that over 60% of Jan Dhan deposits after demonetisation, amounting to Rs42,200 crore (Rs422 billion), were classified as ‘suspicious’. The PMJDY website reports total deposits of Rs82,039 crore into Jan Dhan accounts, as on 29 August 2018. 
 
The BS report quotes the finance secretary, Hashmukh Adhia, as saying that the Central Board of Direct Taxes has received 30 one-time reports from 187 reporting agencies and investigations were on. He also insists that these deposits will be considered illicit only after an investigation and validation by the courts. 
 
This is rather surprising because we have no way of knowing whether this covers every suspicious account. It will soon be two years since demonetisation and we don't even know if all Jan Dhan accounts with crores of rupees have been frozen or whether banks have been colluding with depositors and allowing withdrawals. Given the many cases of scams in collusion with bankers, this is a high possibility, since we have only had silence from the government. 
 
Finance minister Arun Jaitley was rather more forceful. On 6th September he tweeted: “Cash once deposited removes anonymity of its owner. Accordingly, post-demonetisation about 1.8 million (18 lakh) depositors have been identified for enquiry. Many of them are being fastened with tax and penalties. Mere deposit in a bank does not lead to a presumption that it is tax-paid money.” 
 
Mr Jaitley does not say if these are Jan Dhan accounts; also, he is only partly correct. Cash deposited in regular, KYC-compliant savings accounts is not at all anonymous; it could be a problem only in Jan Dhan accounts. A detailed inquiry may reveal that the beneficiary account-holders may be entirely fictitious or are being used as ‘money mules’. 
 
There is a clear case for marking every Jan Dhan account with a deposit of over Rs1 lakh as suspicious since they were never meant for stashing large sums of money; sadly however, if the account-holder has been victimised and used as a money mule, making the depositor responsible for proving the source of funds may only harass many innocents.  
 
Our RTI application reveals that as many as 2.08 million Jan Dhan accounts in just 18 banks (which provided data) ought to be classified as ‘highly suspicious’. The actual number will be significantly higher if all nationalised and scheduled commercial banks as well as cooperative banks are included. Are these separate from the 1.8 million accounts that the finance minister has referred to?
 
Curiously enough, the government is not in a hurry to go after these deposits. After all, India’s political machine is greased by cash and over 69% of political funding comes from unknown sources (says the Association of Democratic Reforms). This government has only made the process less transparent with its electoral bonds. Further, one academic who works in the banking sector has been sending us long emails that are very agitated at the suggestion that there are restrictions on withdrawal from Jan Dhan accounts with full KYC. This adds another shady dimension to the whole business, since we have no idea whether all "suspicious" accounts have been detected and frozen or a few thousand or more have had the deposits transferred and withdrawn as clean, white money. 
 
Two years is a very long time for the tax department not to show results, especially when general elections are less than a year away. What will happen with a new government at the Centre is anybody’s guess. 
 
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COMMENTS

SuchindranathAiyerS

2 months ago

There was a frenzy of Black Money hoarders transferring cash to their servants' and poor relatives Jan Dhan accounts. The BJP's policies and implementation are noteworthy for their complete IAS and Lawyer worthy disregard of reality;

Meenal Mamdani

2 months ago

It is sad to see the collusion of govt / bank officials and holders of black money in this demonetization exercise.
All the various ways that the demonetization exercise was gamed were so obvious to even an ordinary person on the street. It is hard to believe that well informed bureaucrats and seasoned politicians were not able to anticipate these methods and create appropriate mechanisms to detect and prevent these scams.
The sad reality in India is that the people have been swindled by almost all political parties so the only recourse available to them is to kick out the scoundrels every five years hoping that the incoming scoundrel will be a little more careful this time and not indulge in brazen theft.

Shankar Pachari

2 months ago

The best response is from Bank of Baroda. "No such data is maintained". Ignorance is bliss.

ksrao

2 months ago

All bank officials who allowed the balance in any Jan Dhan account to exceed Rs.50,000 should be punished. The massive return of black money to banks and their conversion into white money could not have taken place without the collusion of bank officials, who also must have made lot of money for themselves. Since the present demonetization has been just a tamasha, now Rs.2000 notes should be banned and the mistakes made in the past should not be allowed to be perpetrated in the new note ban exercise. Money supply should be flooded with small notes only, which are not very profitable for counterfeiters to fake and for black money creators to carry.

Rupee at 72 against US dollar: The Pain Might Not Be Over Yet, Says SBI
The Indian rupee on Thursday breached the 72 per US dollar mark for the first time. The depreciation in Indian rupee is largely in consonance with US dollar strengthening against all currencies. Since the Indian rupee could not have been immune to such pressure, the current depreciation was long overdue and trends in Non-deliverable forwards (NDF) market suggest the pain might not be just over yet, says a research report.
 
In the note, State Bank of India (SBI) says, "In the hindsight, the rupee depreciation of 13% in 2018 and around 7% since June 2018 when the RBI started hiking rates is largely in consonance with the US dollar strengthening against all currencies. We analysed the movement of rupee against dollar since global financial crisis period and it is quite visible from the data that depreciation was always followed by appreciation of currency. We believe this time will be no different as currency will start appreciating once the dust settles for the currency to settle at a lower level."
 
The Indian rupee has now depreciated by 7% from June 2018, when the Reserve Bank of India (RBI) started hiking rates and close to 13% in 2018. "Thus, by any stretch of imagination, the depreciation in rupee has now outpaced other Asian currencies like Indonesia. We believe, beyond a certain level of depreciation, the costs could outweigh benefits. There are many components of such cost," the report says.
 
The lender also shares an interesting anecdote on asymmetric behaviour on the part of portfolio investors in times of depreciation and appreciation. 
 
Foreign portfolio investment (FPI) generally responds negatively to domestic currency depreciation over a period. This is obvious, as typical portfolio investor brings in foreign currency but invests in domestic currency and, therefore, a depreciation in domestic currency will only mean that a portfolio investor will be able to take out a lower amount of foreign currency compared to what was originally invested. Thus, it will always be the endeavour of the portfolio investors to prefer a wait and watch policy in the event of a gradual depreciation of the domestic currency. Hence, portfolio investors have a typical asymmetric behaviour as they behave contrarily to appreciation and depreciation of the domestic currency, SBI says.
 
 
"Thus, it is likely that once the rupee settles at a lower level, portfolio investors now conspicuous by their absence will return in hordes and the rupee will appreciate. This is what history of Indian foreign exchange market says and sometimes the period of appreciating rupee following a depreciating rupee could be even higher! On a lighter note, this could make both camps happy," the report added. 
 
Talking down the rupee as was done recently when the markets were volatile might have been counterproductive and thus the pace of depreciation picked up frantic pace in the last week or so. In this context, SBI says, the statement by the finance minister is most welcome and timely one as it has provided an immediate succour to battered market sentiments. The RBI could also chip in with a message that could be most comforting under the current circumstances, it added.
 
According to SBI, the largest lender in the country, there are two perceived benefits of rupee depreciation in the form of increased exports and automatic adjustment of trade deficit in policy circles. However, it says, it believes the traditional view that weak exchange rates could dramatically boost exports growth is not entirely correct over the long term as India’s export basket has changed significantly from traditional products to more mechanized engineering goods over the years, thus making them more income elastic rather than price
elastic.
 
Policymakers need to be mindful of the several costs of rupee depreciation, like short-term debt obligation, oil import bill, yields, effect on inflation and return of portfolio investors, the report says.
 
It says, "First, India’s short term debt obligations at $218 billion due on December 2018 if rolled over could add a significant cost on the Government. Second, oil import bill could go up manifold. Third, with yields increasing, this could add up government fiscal costs too. On all these counts the costs could add up to 0.7% of gross domestic product (GDP). It may be noted that the yields are already under pressure as unlike earlier years, the government borrowing programme has been evenly distributed between two halves in current fiscal."
 
"Fourth, as per RBI estimates, assuming a 10% depreciation, this could add upto 50 bps on inflation number. In fact, continued rupee depreciation could result in rate action by RBI in October policy, even as headline CPI will decline meaningfully to 3.6-3.7% in September. This could be thus the biggest predicament waiting to unravel," SBI says.
 
India’s short-term debt obligations as on December 2017 were about $217.6 billion. Assuming half of the amount either has been paid in first half of 2018 or is rolled over to 2019, the remaining repayment amount in rupee terms would be Rs7.1 lakh crore at average 2017 exchange rate of Rs65.1 per US dollar. For second half,  assuming that rupee depreciates to an average value of 71.4 per US dollar, the debt repayment amount would be Rs7.8 lakh crore, thereby implying an extra cost of Rs67,000 crore. 
 
Talking about oil import bill, SBI says, it assumes that the volume of India's crude oil imports would increase by a modest 3.6% (average of past five years) in 2018. 
 
 
"If we reduce the volume of oil imported in the first half of the current FY, the remaining volume of crude to be imported comes to 760 million barrels (bbl). At an average oil price of $74.24 per bbl for the remaining half, crude import bill of India in 2018 should amount to $57 billion. If the average exchange rate remained at Rs65.1 per US dollar, the crude oil import bill would have been Rs3.64 lakh crore. However, with rupee depreciating to an average of Rs71.4 per US dollar in second half of 2018 end, the import bill would increase to Rs4.03 lakh crore, implying an extra cost of around Rs35,300 crore. With crude oil averaging to $76 per bbl for the remaining half and average exchange rate at Rs73 per US dollar, the extra cost could go up to Rs45,700 crore ," the report says.
 

According to RBI of the Indian rupee by around 5% relative to the baseline, inflation could edge higher by around 20 basis points (bps). With rupee expected to depreciate by say around 14% this year, SBI feels that keeping everything else constant inflation could edge by 56 bps going by the RBI numbers.

 
According to SBI, if the rupee continues to depreciate, it may move RBI towards increasing the regulatory interest rates and it could pressurise RBI to go for more rate hikes. RBI’s successive rate hikes will have a negative impact on private final consumption expenditure (PFCE) as well as investment expenditure, thereby widening the output gap. For instance, during FY13-14, three successive rate hikes led to collapse of private consumption expenditure to 2.0% in Q3 FY14-15 from 8.6% growth in Q2 FY14-15. During Q1 FY18-19, PFCE increased by 8.6% (6-quarter high) and RBI has already hiked repo rate in two successive rate hikes. The continued rupee depreciation and given the significant costs of RBI intervention in forex market and hence the RBI apathy to take that route could result in at least one more hike, possibly frontloaded, the report added.
 
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Rupee breaches 72/$ mark for first time
The Indian rupee breached the 72 per US dollar mark for the first time on Thursday.
 
Around 1 p.m., the rupee traded around 72.05 per dollar, against Wednesday's closing of 71.76 per greenback.
 
According to analysts, the fall in the rupee is due to the Sino-US trade tensions along with high crude oil prices and outflow of foreign funds.
 
Finance Minister Arun Jaitley on Wednesday said external factors have caused the depreciation of the rupee.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

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