Banks have asked the government to extend the curbs on cash withdrawals beyond December 30 until an adequate quantity of new currency is injected, according to bankers and officials in the Finance Ministry. Lifting the curbs immediately after this week could disrupt branch operations as a large number of people could turn up to withdraw cash, bankers have told the Finance Ministry.
The government had informally sought feedback from top bankers on currency withdrawal and plans to lift cash curbs after December 30, said sources. At present, individuals can withdraw Rs 2,500 a day from ATMs and Rs 24,000 a week from their bank accounts. The government is expected to announce its decision on withdrawal curbs Friday.
“These restrictions should go only when there is a sufficient amount of bank notes in the system. Until and unless that happens, they (the government) cannot take away the restrictions. The moment they do this, everybody will want to go and draw out a lot. That will become a problem,” said a senior executive of the State Bank of India.
Indian Banks’ Association (IBA), the umbrella organisation representing private and state-owned banks, said it has not formally proposed anything in writing.
When contacted, Rajeev Rishi, chairman and MD of Central Bank of India, and chairman, IBA, said, “IBA has not recommended anything officially to the government on the restrictions. It is for the government and the RBI to take a view on the issue. We will follow whatever the government decides.”
Even with the curbs in place, the paucity of new legal tender has not allowed many banks to disburse the Rs 24,000 per account in a week. From November 10 to December 19, banks provided only Rs 5.92 lakh crore to the public either over the counter or through ATMs, as per RBI data. This is just 38.3 per cent of the old notes worth Rs 15.44 lakh crore withdrawn by the government.
While the government had announced a series of measures and incentives to push digital payments on completion of a month after demonetisation, a banker said some relaxations on withdrawals may be announced on December 30.
However, he cautioned against a complete withdrawal of curbs. “The relaxations have to be commensurate with the currency availability in banks. It will only be logical for the government to not relax the restrictions as of now since there is not enough cash. If the limits are relaxed, people will ask for more cash and there is limited cash. This will only turn banks into villains,” said a private banker.
Bankers said the main issues are shortage of Rs 500 notes and hoarding of legal tender. “Once more Rs 500 notes come in, the instinct to hoard will wane. The extent of recycling of new notes is not in sync with the quantity of notes introduced so far. Traders are not depositing their receipts as one would expect in normal times. They are holding it given the restrictions on withdrawals,” said the SBI official.
An email sent to the Finance Ministry’s spokesperson on the bankers’ seeking extension of cash curbs did not elicit any response.
The Finance Ministry hopes to inject at least 50 per cent worth of the demonetised currency returning to banks by December 30. As per RBI data, defunct Rs 500 and Rs 1,000 notes worth over Rs 12.44 lakh crore have been deposited till December 10. The central bank has not released the data on deposits of old notes since then.
The government and the RBI have so far not specified categorically that they will do away with the restrictions on withdrawals after December 30. The RBI has said that it will review the situation and take a decision.