State Bank of India Chief Recounts Being 'Pushed Off the Deep End' by Demonetization

Chairperson of the State Bank of India Arundhati Bhattacharya discusses India’s direction in 2017, in addition to opportunities and challenges that the country faces. (1 hr., 21 min.)

On November 8, 2016, Chairperson of the State Bank of India Arundhati Bhattacharya was summoned to the Central Bank in Mumbai along with the heads of other top Indian financial institutions. Gathered around televisions at 8 pm that night, they watched Prime Minister Narendra Modi announce to them and the rest of the country a startling piece of news: India would immediately discontinue the use of all 500 and 1,000 Rupee ($7.75 and $15.50) banknotes, which represented 86 percent of all currency in circulation.

“The banking system did it without any notice, no preparations,” Bhattacharya recalled recently at Asia Society in Hong Kong. “We were just pushed off the deep end and expected to swim, which we did very well.”

This unprecedented “demonetization” was done in a bid to fight problems associated with “black money” — like tax evasion, corruption, and organized crime — as well as prompt the transition to a more cashless society. The rationale was that people with illicit cash would be forced to get it on the books and out of the shadow economy upon exchange or have to forfeit it. “Cash is pernicious in that it leaves no tracks,” Bhattacharya said. “There are no footprints. So to make a less cash-intense society is very important.”

But for a country that was nearly 90 percent reliant on cash, the move and its surprise implementation were highly disruptive. It led to long queues at ATMs, cash shortages, hardship for the poor, job losses, and slowed GDP growth, on top of a host of other problems. However, Bhattacharya argues that it was a necessary move with high support among a public with shrinking tolerance for corruption. “I think the media captured the angst and the difficulties,” she said. “But it did not capture the groundswell of support that was there for this activity.”

She added, “While we bankers worked really hard, we also have to thank the people at large — the citizens of India and the customers who so patiently cooperated with us during this entire exercise.”

It remains to be seen how effective the highly controversial measure will be in the long term, but Bhattacharya noted that it’s only a first step. “Frankly, demonetization is one of many steps the government has taken,” she said. “[It] was really a shot across the bow to tell people that [the government] is really and truly serious about this matter.”

In the above video, Bhattacharya talks more about the demonetization process, why so many Indian women have high positions in banking, and what challenges lie ahead for the country’s economy.

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Eric Fish was a Content Producer at Asia Society New York and is author of the book China's Millennials: The Want Generation.