Has there been too much withdrawn from automated teller machines (ATMs)?

A report by State Bank of India (SBI) has claimed that cash withdrawals rose sharply the second half of 2017-18. While withdrawals in the second halves of fiscal years have always been higher than the first, the SBI report said the increase in FY18 was unusual.

When we look at the data posted by the Reserve Bank of India (RBI), some interesting patterns emerge in terms of cash withdrawals from ATMs. Firstly, if we look at the number of cash withdrawals from ATMs per month, we see that the number of withdrawals is still lower than what it used to be prior to demonetization in November 2016.

In fact, going by figure 1, it is likely to take a long time for the number of withdrawals from ATMs to hit pre-demonetization levels (as shown by the blue trend line).

Instead, after demonetization, people are withdrawing larger amounts from each ATM visits. While it is hard to draw causality, this is most likely because of memories of shut ATMs and long lines in the period immediately following demonetization.

In fact, as figure 2 shows, as soon as cash was widely available following demonetization, the average ATM withdrawal amount became higher than in the pre-note ban period.

And this average withdrawal amount has only gotten higher with time, hitting close to Rs3,500 over the past few months.

Putting these two together, the total amount withdrawn from ATMs each month shows a rather interesting pattern (figure 3). This amount immediately hit pre-demonetization levels as soon as adequate cash was available in March 2017, and has increased sharply since then.

In fact, in October and December last year, the total amount of cash withdrawn from ATMs was back at the level dictated by the pre-demonetization trend.

In this sense, the SBI claim that withdrawals in the second half of 2017-18 were higher than that in the second halves of earlier financial years (barring 2016-17) is correct.

However, if this trend is going to continue, it is going to put further pressure on ATMs—and on the banks and RBI!