“From midnight of November 8, 2016, Rs. 500 and Rs.1000 will cease to be legal tender. These notes are just papers from tomorrow,” said Prime Minister Mr. Narendra Modi.
The announcement was made to combat black money, corruption, counterfeit currency notes and terrorism financing, etc. All electronic transactions, cheques, debit cards, internet banking, cash, demand draft transactions, e-transactions on account of business firms, companies and individuals will continue.
Banks will be closed on November 9. The ATMs will not function till November 9, and in some places till November 10. A new series of Rs. 500 and Rs. 2000 currency notes with better security features will be brought into circulation.
There is no restriction of depositing the Rs. 500 and Rs. 1000 currency notes in the bank account. However, there would be restrictions on withdrawal of cash from the account of Rs. 10,000 per day or Rs. 20,000 per fortnight until November 24, 2016. Thereafter the limit would be enhanced.
Also, these notes can be exchanged in banks and post offices from Nov 10, 2016 to Dec 30, 2016, by providing a valid identity proof (Aadhar, PAN or voter ID). After December 30, 2016, currency notes can be exchanged at RBI by providing a declaration until March 31, 2017.
Please keep in mind that RBI will monitor and regulate the printing and circulation of Rs. 2000 notes. Also, the banks will have video cameras for all transactions and share info with Income Tax dept. as deemed fit.
The 500 and 1000 currency notes will still be able to used for 72 hours at:
- Government Hospitals and pharmacies in these hospitals,
- Ticketing counters – Railway, Buses, Airlines,
- Consumer co-operative societies, milk booths for purchases,
- Crematoria/burial grounds,
- Petrol/diesel/gas stations of Public Sector Oil Marketing Companies,
- International airports for arriving and departing passengers,
- At airports for foreign tourists to exchange foreign currency at airports.
What to Do?
- If you have accounted or official money in cash (you can prove the source and is reported to Income Tax): NO NEED TO WORRY. You may deposit in the bank until Dec 31, 2016 and replace from RBI after making a declaration until March 31, 2017 WITHOUT LIMIT.
- If you have unaccounted money:
- in Cash (less): The money can be exchanged from any bank until Dec. 30 after giving documentary evidence. There are certain limits on a daily transaction and RBI/ IT would be monitoring who is coming to exchange the currency notes.
- in Cash (high): Need to be innovative in use of cash immediately (within 1-2 days) or they would be worth “raddi” or “pasti”.
- A lot of NRIs may also have cash in the lockers or at home or with someone. They would need to visit India immediately or it would just be paper. Only 50 day window to exchange the currency notes to Bank or to make a declaration to RBI and exchange by March 31, 2017.
Effect on Investments:
- Real Estate: As cash or unaccounted money is predominantly used in property transactions, Real Estate Market will be worst affected. I expect the real estate prices to go down and to remain subdued in the time to come.
- Gold: The gold would be second most affected as there are mainly two investments where the unaccounted money or cash is invested. I would expect the gold demand to decrease and price may fall.
- Bank FD/Debt: There would be in inflow for FD or debt investment from the investor who does not want to take any risk and need protection or secured return. However, as RBI has been decreasing interest rates, the return would not be attractive (only 7% now) and investor may need to look for other avenues. However, I would expect investment in Bank FD or Debt to increase and interest rate would go down further.
- Equity:Market will be very volatile due to US elections as well as ban on use of 500 and 1000 rupee notes in India in short term. I expect the market would go down and may be chaotic this week and next.However, in the long run as more and more investments come pouring in or reducing allocation in real estate or gold, I expect the equity market to benefit. Also, as India is making steps in right direction, the equity market is expected to gain over a long term.
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