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    Modi's black money move very bold, to impact discretionary spending: Chanda Kochhar

    Synopsis

    “Even today the overall electronic payments is actually much less compared to what it could be”

    ET Now

    In a chat with ET Now, Chanda Kochhar, MD & CEO, ICICI Bank, says Modi move will definitely bring about a transition to no cash or low cash kind of transactions. Edited excerpts


    People have called this the boldest reform, people have called this an unprecedented move. It is a combination of national security and other wider agenda, a crackdown on corruption. I know bankers like yourselves will have very busy days ahead. What do you make of this move? Do you believe this is as big and bold move as it is being made out to be?

    It’s the most significant move ever made to curtail black money and parallel economy and second also to give a boost to less cash electronic form of payments. So it is indeed a very, very bold and a very significant move.

    A lot of people believe that this is the biggest crackdown on the parallel black economy that was in the making. It is of course going to encourage electronic transactions and bankers like yourselves are going to be very busy in the next few days. The clean up drive is going to have an obvious impact on real estate. Are we going to see correction in that space? Will we see a big switch to the electronic transactions that India has not embraced as much as an economy like ours should have?

    Yes, so if you look at the embracement of electronic transactions, while India has been moving pretty fast, but the base remains very small and therefore even today the overall electronic payments is actually much less compared to what it could be. So this move will definitely bring about a whole amount of transition to no cash or low cash kind of transactions.

    There are a lot of counterfeit notes in the system have been inflationary in that sense, have fuelled inflation do you expect inflation to go down a little on account of money that is going to be crack down upon?

    Well I think the overall move will have far reaching impact. It is going to be very difficult for us to track how much of this has an impact on inflation. Things like inflation depend on many more things but some amount of discretionary spending which used to get done on the basis of pure cash is definitely going to get curtailed.

    While it is a very good move but this is going to impact consumers directly because there are caps on ATM withdrawal, there are caps on what you can exchange on an everyday basis. What are you going to do to mitigate the impact on consumers? How will you ensure that this going to be done smoothly because I am given to understand and a Department of Economic Affairs Secretary and the RBI Governor did say that banks both private and public will be shut tomorrow and works begin only day after but there is a mammoth task that lies ahead of you?

    We have to understand that if anytime the economy goes through such a large structural move, we all have to put our heads together and make it happen in as smooth a manner as possible. What will happen is that while banks are shut for consumer facing transactions, this is the day for the banks to internally kind of pull back old Rs 500 and 1000 notes and exchange them for the newer notes, the Rs 100 notes so that from day after we are ready to start dispensing those notes to the consumers.

     

    Of course there are certain limits that have been put for the next few weeks but that is actually in order to ensure that this gets done in as seamless manner as possible and that as many customers who need some amount of cash get it rather than it is getting concentrated in a few people.

    We must also remember that all the emergency based exceptions have already been made whether it is the petrol pumps or whether it is the hospitals and so on. I would not say that it is just going to be a very simple thing. It is going to require focus tapered but the banks would gear up and do this with the least possible inconvenience to the consumers and we will have to kind of bear this patiently to ensure that the whole transition happens in a smooth manner.

    Will your ATMs remain shut tomorrow, will they be in operation because you will have to pull out I am presuming the Rs 500 and 1000 denominations that still exist there?

    As per the RBI notification the ATMs have to be shut from 12 midnight so they have to be shut and that is I think the consumer should understand that is necessary so that all the older currency notes are pulled back from the ATMs and the branches and that they can be stuffed with either the newer notes or the Rs 100 notes.

    As one of India’s top bankers you have spearheaded the whole move to cashless economy . What are the upsides that you see of this move?

    It is a great move. First of all, even if it does not become cashless economy it will become a less cash economy and I think that itself is going to be a good and big achievement and I think we are as a country gone through many of large changes and ICICI has been a leader in many of them.

    Even when we went through the whole clean note initiative by RBI where we substituted all the old and solied notes with clean notes and so on. We went through that. The whole thing of moving the currency through currency sorting and detection machines and so on that was the whole process actually encouraging electronic transactions. I think in a lot of these things the banks have taken the lead and consumers have actually reacted very positively and I am very confident that while the consumers will have to be a little patient over the next few days but overall this will be a very positive and very good structural move.

    Is there a back of the envelope calculation that we have on the impact that this is going to have on banks transaction cost like yourselves?

    Well I think as of now we are only saying that this instead of the older notes the new notes will be given out. It is not possible to do an impact on cost but the more important thing is not to think about cost just now but to think about getting it done smoothly and focussing on the processes and implementing them in a way that the customers do not get kind of inconvenienced.

    I had a very senior market participant early on with us and he mentioned that this is going to lessen inflation, this may actually prompt the RBI Governor to even reduce rates. Are you somebody who shares that opinion that this move may actually help in a rate cut as well?

    Well as I said that you cannot take one step and just look at the impact of that on various other larger impact but yes I think inflation is anyway coming down and as I have said earlier as well that the inflation target is of RBI is only going to be undershot by March so we are going to be in a more comfortable position as far as inflation is concerned. I think that gives room to RBI in terms of the monetary policy rates.




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    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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