Centre, RBI step in as cash crunch hobbles ATMs across various states

Centre, RBI step in as cash crunch hobbles ATMs across various states

Several states are facing cash shortage despite currency flow in the economy going back to the pre-demonetisation level

The finance ministry held a meeting with the Reserve Bank of India (RBI), banks, and state government officials on Thursday to take stock of cash availability in automated teller machines (ATMs) after receiving complaints of cash crunch in some states.

Several states are facing cash shortage despite currency flow in the economy going back to the pre-demonetisation level. A recent analysis by the RBI to the finance ministry found that the rate of cash withdrawal was far more than the cash deposits in banks in states such as Andhra Pradesh, Bihar, Karnataka, Maharashtra, Rajasthan, Uttar Pradesh, Madhya Pradesh, and Telangana, according to the documents reviewed by Business Standard.

“We held a meeting with the RBI officials, banks, and states today (Thursday). There is no apparent cash crunch across states. Bihar and Manipur are facing some issues. Banks have been advised to optimise cash flow at ATMs well,” said a senior finance ministry official. The official added that the cash crunch was largely restricted to a few states for various reasons, including mismanagement of cash flow by banks, recalibration of ATMs, and logistical issues.

A senior RBI official said there was no dearth of currency notes and the deficiency could have been caused by local demands responding to the ebb and flow of economic activities.

“During the harvest season (rabi), transactions go up. There are always some temporary mismatches. Whenever we get intimation from our currency chests that there is a shortage, we immediately replenish. The notes in circulation are now more than what they were before demonetisation. This currency shortage theory is incorrect,” said an official with the RBI.

The notes in circulation on November 4, 2016 - four days before the Union government announced demonetisation of Rs 500 and Rs 1,000 notes - were Rs 17.74 trillion. Currency notes in circulation are now at Rs 18.04 trillion. The economy has since grown, but the notes in circulation have not grown in tandem. This may explain the discrepancy, but factors such as local elections, too, play a crucial part in hoarding of currency and it is not abnormal to see a cash crunch before key elections.

ATMs dried up in north Bihar due to issues related to transportation of cash from currency chests located in other parts of the state, sources said, adding the situation will be under control in the next few days. Last week, the finance ministry directed banks to address the situation of cash shortage at ATMs in Varanasi – the constituency of Prime Minister Narendra Modi - a senior public sector bank (PSB) executive said.

The Department of Financial Services Secretary Rajiv Kumar held a meeting with bank executives last week to take stock of the cash crunch in Karnataka. “In Karnataka, there was a high rate of cash withdrawal in the recent days. There were bank holidays towards the end of March due to which ATMs were running dry for a short spell,” sources said.

“After the introduction of Rs 200 notes, there were also some issues related to recalibration of ATMs. Banks have been told to address the issue immediately,” a finance ministry official added.

Senior bank executives said there were signs that the banking network in Madhya Pradesh could face some pressure, adding that the cash crunch at ATMs had been reported in Bihar, Andhra Pradesh, and Telangana as well. Complaints have been reported from semi-urban and rural regions of the states. But Mumbai and Delhi have been largely insulated owing to the large size of currency chests.

“We are sending extra notes to areas reporting shortage from currency chests. But we cannot move currency notes overnight as it needs arrangement for securities, especially in remote areas,” a senior State Bank of India executive said.There is a spurt in demand for cash to make payments for agricultural activities as well. “We need to get more supplies of Rs 200 and Rs 500 notes. The RBI has assured us it will improve the supply,” said a head of retail banking with a mid-size PSB.

The Business Standard, New Delhi, 13th April 2018

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