Cash crunch: Why ATMs are running dry in some states
Mumbai: Cash crunch at ATMs in some states has the Reserve Bank of India and policymakers scrambling to assuage apprehensions. A look at what lies behind the sudden cash crunch and what the government and RBI are doing.
What is the fuss about?
News reports from various states, including Andhra Pradesh, Madhya Pradesh, Telangana, Maharashtra and Bihar, talk of many ATMs running dry. The government and RBI officials attributed the shortage to unusual local demand in a few states and asked banks to improve their cash management. Finance minister Arun Jaitley has called it a “temporary shortage”.
What is causing the cash crunch?
According to Subhash Chandra Garg, secretary in the department of economic affairs, there has been an unusual spurt in demand. Supply has not kept pace. “In the current month, in the first 13 days itself, currency demand increased by Rs45,000 crore. This unusual spurt in demand is seen more in some parts of the country like Andhra Pradesh, Telangana, Karnataka, MP and Bihar,” the finance ministry said in a release. The government said it is not supplying any additional Rs2,000 notes. Around Rs6.7 trillion of Rs2,000 notes are in circulation at the moment. As on 6 April, total currency in circulation was Rs18.43 trillion, compared with Rs17.98 trillion a few days before the 8 November 2016 invalidation of high-value banknotes.
What is behind the sudden spurt in demand?
The reasons are still unclear. These are some of the theories doing the rounds: One, cash is being routed to Karnataka, where state elections are scheduled to take place on 12 May. Typically, currency in circulation with the public rises prior to elections as seen in the past. Two, people are increasing their cash hoards because of recent frauds at banks such as the one at Punjab National Bank and fears over the Financial Resolution and Deposit Insurance Bill, which has a so-called bail-in clause. A bail-in involves rescuing a financial institution on the brink of failure by making its creditors and depositors take a loss on their holdings. Mint could not independently verify these claims.
What is the government doing about it?
The government plans to increase printing of Rs500 notes by five times over the current daily supply. Rs2,500 crore of 500-rupee notes will be printed daily in the next few days.
What about RBI?
Though RBI has contested a cash shortage, it has also ramped up printing of currency notes in all its four presses. According to RBI, the shortage felt in some pockets is because of logistical issues of replenishing ATMs frequently and the recalibration of ATMs, which is underway. RBI is monitoring both these aspects.
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