Cash crunch: 'This is not demonetisation part 2, problem is the high share of Rs 2,000 notes'

"Supply of Rs 100 and Rs 200 denomination notes have to be increased on express basis," says Sinha, who is also the co-chair of FICCI's committee on private security. He was earlier the president of Cash Logistics Association of India.

Excerpts from an interview:

Q) How severe is the problem?

A) This has been blown out of proportion. This is not demonetisation part 2, this is nowhere near it. There is neither a nationwide cash crunch problem, nor a cash supply problem.

And it's not that every ATM is running dry and it's not that banks or RBI is not dispensing money, and it's not that ATMs are not being loaded with money.

Q) But some parts of the country have reported dry ATMs.

A) There have been cash supply problems in pockets of Andhra Pradesh, Telangana, Gujarat, Madhya Pradesh and Bihar.

But this happens in regular basis, as some pocket or the other will always have cash excess, or there will be cash shortage.

RBI supplies cash to every state, but at the end of the month, some states have excess and some less.

This can also be seasonal. Like Delhi has cash crunch during Diwali, or Bihar during Chhath, as the demand is high.

Q) What is the state of currency in circulation?

A) It's higher than from the pre-demonetisation days. I wouldn't have the exact details.

But the critical change is that now cash velocity is a challenge.

Q) Can you explain that?

A) The large part of the cash in circulation is in Rs 2,000 denomination , which has a higher propensity of being hoarded.

The Rs 2,000 currency note doesn't change hands as often as Rs 100, Rs 200 or Rs 500 denominations. If someone draws Rs 2,000, and also 500, 100 or 200 notes, then it happens that the 2,000 currency lies in the wallet for much more time than the lower denomination notes. This impacts the currency circulation.

Q) How about ATM withdrawls?

A) The number of ATM withdrawals is back to the pre-demonetisaion days. And the big difference is to do with the 2,000 notes.

Pre-demonetisation, the average ATM withdrawl was Rs 3,000. This has increased to Rs 5,000 due to the higher presence of Rs 2,000 notes.

Q) So the behavioural change from de-monetisation - of people shifting to plastic money and digital transactions -  that was being hoped for, hasn't happened.

A) Yes, the behavioral change hasn't happened.

Q) What should be done to overcome the current situation?

A) The supply of Rs 200 denomination notes should be pushed up significantly. The Rs 100, Rs 200 notes are highest in circulation and should be pushed big time.

And we need to re-calibrate ATMs with Rs 200 notes at express basis. And Rs 200 notes should be made available across India at a regular basis. This will overcome the velocity challenge.

This is the long term solution.

In the short-term, we should push as much as money as possible.

Q) How much time before we get back to normal times?

A) About four to five days.