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Cash demand dents digitisation expectations; banks, suppliers blame RBI for shortage

The cash crunch also proved that the push for digitisation in banking and payments is not going as planned, since the demand for cash is clearly rising.

April 18, 2018 / 07:32 PM IST

As a cash crunch gripped Automated Teller Machines (ATMs) in over five Indian states, bankers and cash management firms blamed it on inadequate supply of cash and seasonal rise in demand.

The cash crunch also proved that the push for digitisation in banking and payments is not going as planned, since the demand for cash is clearly rising.

For the last few weeks, ATMs have been running dry in states like Telangana, Andhra Pradesh, Karnataka, Bihar (north), Madhya Pradesh, and Maharashtra. Even Delhi complained of a cash shortage.

Pointing out that the currency in circulation before demonetisation was around Rs 17.77 lakh crore, R Gandhi, former Deputy Governor of the Reserve Bank of India (RBI) said that the figure has now reached Rs 18.17 lakh crore.

"Today we are at Rs 18.17 lakh crore but in between one year nine months, in the normal course, currency demand would have been an additional Rs 4-5 lakh crore. We thought we would have seen a behaviour change but that has not happened and hence, the demand is increasing," Gandhi said.

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On the one hand, many have been blaming the shortage of Rs 2,000 currency notes in the system, and the fact that ATM cassettes have not been configured to dispense Rs 200 notes.

Other things being held responsible for the cash crunch are elections (upcoming polls in Karnataka), state government programmes in Telangana and Andhra Pradesh that are used to make cash payments, festive seasons, and misunderstanding of the Financial Resolution and Deposit Insurance Bill’s ‘bail-in’ clause, where depositors would bear a portion of any losses, among others.

On the other hand, this is also indicative of the fact that digitisation has probably failed to plug the cash comfort Indians were used to before demonetisation, which in turn led to the gradual rise in demand.

As per RBI data, 'cash in hand’ with banks, which comprises cash supplied by the RBI, from which banks stock up their ATMs with currency notes, fell to around Rs 60,480 crore as of March 30, from a high of Rs 71,000 crore at the end of December, 2017.

Currency in circulation as on April 6 was Rs 18.17 lakh crore, which was more than the currency at the time of demonetisation.

Navroz Dastur, MD of NCR Corporation, which operates around 50 percent of ATMs in India, said, "It (cash crunch) could be because people are now hoarding more cash, we have that increase in transactions, i.e. people are pulling out more cash from ATMs. Now, it is hovering around Rs 3,500-4,000 per transaction, a huge increase as compared to Rs 2,500-3,000 earlier in pre-demonetisation times."

According to Gandhi, it seems like post demonetisation, people still seem to be wanting cash, and the idea of bringing about decisive change in the public's preference for cash has not materialised.

According to a few reports, the government has acknowledged that the demand for cash in India has gone up from the monthly average of Rs 19,000-20,000 crore to around Rs 40,000-45,000 crore per month, in the first 13 days of April itself.

Dastur said it had been 18 months since demonetisation and while the economy has grown, the cash in circulation has not grown commensurately.

In February, NEFT transactions declined by 3.4 percent from January. In all, retail electronic clearing (including NEFT, NACH and IMPS) declined by 2.4 percent in February over January, RBI data released on April 10 showed.

Similarly, usage of debit and credit cards at point of sale machines reduced in the same period even as prepaid instruments such as wallets edged up 1.2 percent and mobile banking transactions were also up by 2.2 percent.

However, with some push towards ‘Digital India’, electronic transactions overall in the country reached a record high of 1.11 billion in January, up 4.73 percent from the 1.06 billion seen in December last year.

Bankers, cash management firms blame RBI

"The RBI had not been meeting demand for cash as per our indents, meeting only about 70-80 percent of our requirements. Also, not every ATM is recalibrated to accept Rs 200 notes, while Rs 2,000 notes are in short supply," a senior banker told Moneycontrol.

According to two officials, one each from a cash management firm and an ATM operator, banks do not fill up ATMs to their full capacity, merely 70 percent of it.

"Bankers say they are not getting the full indent from RBI and hence unable to meet the demand of ATMs…Prior to demonetisation, this used to be at least 85 percent," one of the officials cited above said.

Although the government has clarified that it still has currency reserves of Rs 1.75 lakh crore to meet the demand, RBI has also stepped up printing of notes at its four currency note presses.

"There have been issues with the raw materials like ink and paper for some time now which has restricted currency supplies to banks," said a person familiar with the currency supply situation.

Radha Rama Dorai, Managing Director - ATM & Allied Services, FIS: "The cash crunch situation has been ongoing since demonetisation. It’s been discussed at an industry level with banks as well as the regulator...The cash carrying capacity of the ATMs have gone down in terms of value. Over long weekends clubbed together with holidays, ATMs tend to run dry. Refilling the ATMs on Sundays or holidays is difficult since banks are closed.”

According to her, the crunch is not a new phenomenon and Punjab has been in a cash crunch ever since demonetisation. On the other hand, states in the NorthEast have been feeling the pinch over the last four to five months only. "We have been getting 40-60 percent cash from banks in other States," she said.

Gandhi did point out that if the RBI is not supplying currency notes to banks in line with its original intent, then that is "disturbing".

"I cannot say whether RBI has taken a call on consciously changing goal posts to reduce the indents but if that is the case it is disturbing. If there is a cut in RBI’s supply of indent, that I am surprised. Pre-demonetisation, we used to supply 100 percent as per demand. But there is natural commercial difference in supplydue to different denomination notes, that can happen but I would not read too much into it," the former RBI deputy governor said.

Further, V Balasubramanian, spokesperson of the Confederation of ATM Industry (CATMI), pointed out that ATM service providers do a daily calculation of the cash required, which is sent to banks in the night for the next day.

"Till March end, the daily demand was being met by 90 percent, irrespective of public or private banks. However, it has reduced since the first week of April. It has fallen drastically in the past week, now the requirement is only being met at 30 percent by PSUs," he said.

The government, the RBI and State Bank of India Chairman Rajnish Kumar have denied any shortage of currency and Kumar said cash availability at ATMs is around 88 percent, which is normal.

For now, the government and the SBI Chief have promised to meet the cash shortage in the next 5-7 days.

However, one can only hope that more citizens move to digitised payments from here on.
Beena Parmar
first published: Apr 18, 2018 10:33 am

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