Going cashless shouldn’t become like a diet plan undertaken in a medical emergency but abandoned soon after: Arundhati Bhattacharya

If that brilliant artist, Rashid Rana, known for his pointillist work, were to make a composite portrait of the Indian banker today he would no doubt show a frazzled and furrowed-brow creature. But Arundhati Bhattacharya might not fit in there. As perhaps the single most important link between the government and the people, the chairman of State Bank of India, is markedly unhurried and un-harried. In the face of RBI Gove-rnor Urjit Patel’s conspicuous silence, Bhattacharya has, in recent weeks, emerged as the voice of the banking industry. It’s a voice that rings out clear and sharp, signalling purpose amidst the mess of demonetisation.

If one day she is at the Jagannath Puri Temple inaugurating the first POS (Point of Sale) machine cajoling even the Gods to go cashless, the very next she may be at her art-lined office on the 18th floor of the SBI headquarter at Nariman Point, trying to tackle India’s rising NPA (non-performing asset) crisis.

Bhattacharya, 60, started at the SBI in 1977 after her dream of studying medicine was thwarted by the Naxal movement (“In those days degrees that normally take five years would take eight to ten years due to disruptions at educational institutions. So, instead of medicine I opted to read English Literature at Lady Brabourne”). She is part of a global clique of powerful women controlling the banking and financial world. It comprises the likes of Federal Reserve Bank Chair, Janet Yellen, Christine Lagarde of the IMF, Deputy Governor of Bank of England, Nemat Shafik and Sri Mulyani Indrawati, the recently appointed World Bank MD, to name just a few. She is widely tipped to take over as the boss at Securities and Exchange Board of India (SEBI) after her term ends but all that speculation must wait for now as she tackles the fallout of demonetisation.

In this interview she talks about that, and more:

At the Make-in-Orissa conclave recently you asked the country’s leading industrialists to get their last level people — the dealers, specifically — to fall in line and move to digital transactions. But surely turning around long-held business practices can be quite challenging.

The biggest challenge for us is not to get businesses to switch to POS machines — many of them are quite happy to — but rather it is how to scale up very quickly in a very short period of time. Availability of POS machines may be one thing but we also have to improve the infrastructure to improve connectivity. You can’t have transactions being timed out during peak hours. But overall the feedback has been good. I only hope these practices remain. And for that you can’t just depend only on the person selling the goods but it’s also up to us, the common folks, to insist that we’d prefer to pay through cards. Customer behaviour needs to change.

But money is not just material; it also has implications for us psychologically. Is the effort also then to change the way people feel about their own money?

We’re saying it cannot be like a diet plan that when you have a medical condition you go on a strict diet but when the condition recedes you forget all about that and relapse. So it shouldn’t be that when you have enough cash you lapse back into your old habits. This (digital transactions) has to become a way of life.

That’s fine but by when can we expect the cash flow to ease?

The Reserve Bank has said that from 15th December onward the 500 rupee supply will go up, and the cash situation will start easing. The thing with Rs-2000 notes is that if you buy goods worth Rs 600, get back say, 14 notes in hundred rupee. Counting 14 notes is not easy. People can count up to four or five notes comfortably. Beyond that people make mistakes or some note may slip to the ground… So it’s not that easy to transact in Rs-2000 notes. And the Rs 100 note… that everyone is hoarding thinking, ”chutta nahi milega”. The 500 rupee note will act as span-breaker. It’ll make spending easier. For the simple reason that there are fewer notes to count when you get change back.

But if the 500 rupee note was the better currency then why the delay? Why flood us with 2000 rupee notes first?

The printing presses have certain limitations and capacities. As for going with the 2k notes first, the idea was to put back value first. More than convenience, what was being tried first was to restore value.

Meanwhile Mr Gurumurthy (the RSS ideologue) is already saying that Rs 2k will also be demonetised.

It’ll not happen in a hurry is my guess, as it’s quite costly to do this exercise. Also, I think people will be allowed to settle down.

One of your big concerns has been NPAs. As the economy slows down following demonetisation, do you worry about the rise in NPAs?

It’s rather difficult to predict at this time. We’re hoping the slowdown is temporary. This is uncharted territory; very difficult to state. With many of the supply chains, their last link was cash. When the last link fails then the lack of demand from the last link starts rolling up, and inventory starts to pile up. The only good thing is that the demand has not gone away but the means to satisfy the demand is no longer there. People who do doing discretionary spending have used their discretion to not spend. We’re hoping this is a temporary phase — a matter of months or so and then the demand will reassert. But if this lack of demand goes on for 7-8 months then there will be difficulties. For the one surefire way for NPAs to turn around is for the demand to go up.

So while on the one hand the RBI or you or the other banks were trying to lick this problem of NPAs into shape, along came demotenisation and railroaded everything.

Not everything. The dip is only in discretionary demand. Restaurants, health services, food, all those are doing well. The macro parameters are very good. There’s money in people’s accounts. The current account deficit, the fiscal deficit they are all under control. Inflation will come in with a very, very nice number. Given that there’s space to spend and once the means is made available, the sentiment will return.

While the urban middle and upper middle classes have reason to hope that the sentiment will come back, for those poor and for those running really small scale businesses — their economy is a different economy, and their distress doesn’t seem to be getting alleviated.

I agree with you. However, the problem is not of the very poor for they anyway dealt in smaller currency notes and the Rs-100 notes were and are available. The chief problem is in the slightly better-off parts. Say a farmer goes to the adtiya (middleman) with his crop and he has to give the farmer Rs 60,000 and he doesn’t want to pay in cash or via transfer; or the farmer also wants cash or he doesn’t have a bank account, then there is a genuine problem. Many mandis may not have internet capability. The e-wallet also has a Rs-20k limit…these are genuine problems. We are trying to put RBCs (rural banking correspondent, a sort of an agent) with the middleman and empowering them to ensure they can pay. Let’s see how it works out. People are still finding their feet. This has been a huge occurrence in their daily lives.

But it’s not as they (the poorer sections) are not interested. They are very keen to participate in this thing. They are keen to turn digital. One by one we’re turning villages digital. As infrastructure and the backbone of communications become better… things like UPI make money transfer very simple.

Going back to the issue of NPAs….

It has been my stated priority. It’s also currently my stated priority.

Oh, you have the time?

Oh yes, yes. Just because I eat doesn’t mean I don’t sleep. I do both. No matter what comes up. Some of these units are beginning to do OK. These are green shoots that we’re hoping to build on. They will need deleveraging. We will have to take a certain amount of pain and haircuts (sic) but it’s worth everything if we are able to put them back on a sustainable basis. We’ll be doing all that’s required to be done through S4A (a new restructuring scheme).

Do we need stronger punitive measures?

Punitive measures are always required, and India is not known for them. Because even if you do start something (legally) it takes so long to end. So that’s required but not everybody should be punished because if that were to be the case no one would take the risk to get into business. And if there’s no business there will be no employment. Wrongdoers need to be punished but not everybody. As for who is the wrongdoer that has to be found out by the instruments of the state and it’s not for the banks to determine that. But in India the perception is if you have NPA you must be a criminal. NPAs are not endemic to India, they happen world over. But you have to go through a process to first determine whether there is genuine business failure or it’s because of some wrongdoing and only then take action.

As a country are we geared to tackle this? First with liberalization and now with demonetisation, we’ve jumped into the deep end without the processes in place.

Well that’s one of the things also considered to be India’s strong point — that we’re able to do enough jugaad. It all depends on whether you use jugaad in the positive or negative sense…But yes, we seem to be a country that’s able to respond to crisis quite well.

But sometimes the crisis maybe all our own doing. For instance, if most of the money that went out has come back into the system, then the very basic question arises: what will be the tangible gain of demonetisation?

It’s three-fold. One : High quality forged notes have been eliminated. At least temporarily. Counterfeiting the next set of notes will require greater capability as they have better security features.

Second : People who were doing a lot of business in cash come into the revenue net. Only 4 per cent of the people are in the direct tax next. Four per cent simply cannot support a 1.3 billion population. We need to expand the revenue net so that the burden on people comes down overall. We also need to ensure that all of society participates in paying its just dues.

Third : If we’re looking at a sustainable and inclusive society we have to ensure opportunity for everybody. India has become an unequal place. For instance, if you have a fellow running a shop and paying his dues, his margins are lower. Right next to him is another shopkeeper who is not paying his dues, and his margins are larger. So here’s Person A being unduly penalised and there’s Person B who is profiting unduly. This kind of a business model doesn’t work. Not just that, today Person A is small shopkeeper who uses POS machine and puts his money through the formal system. So when he needs it, the banks can loan him money as we know his turnover. This inclusion in the formal system is at a reasonable rate so over a period this fellow will grow bigger but Person B has to necessarily go to an unofficial lender who will charge him huge interest rate. He’ll find it difficult to scale up.

Now if you give people gyaan they won’t always listen but put a little force behind these things and they start understanding.