The government said Tuesday that it has ordered a five-fold increase in production of Rs 500 notes to total Rs 2,500 crore per day after at least six states, including poll-bound Karnataka, reported a serious currency crunch with several ATMs running empty.
As Telangana, Andhra Pradesh, Gujarat, Madhya Pradesh and Bihar also reported a shortage, Union Finance Minister Arun Jaitley posted on Twitter: “Have reviewed the currency situation in the country. Overall, there is more than adequate currency in circulation and also available with the banks. The temporary shortage caused by ‘sudden and unusual increase’ in some areas is being tackled quickly.”
Department of Economic Affairs Secretary Subhash Chandra Garg told reporters that average monthly demand has more than doubled to Rs 40,000-45,000 crore from Rs 19,000-20,000 crore just a couple of months ago.
EXPLAINED | Cash crunch – No cash in ATMs: Why, what now
Garg said the government has enough reserves to meet the demand, which could be due to a “shortage mentality” as people try to hoard cash. “In the last few days, the government has stepped up currency printing. As against Rs 500 crore worth of notes being printed per day, it is being increased to Rs 2,500 crore per day now in denomination of Rs 500,” he said.
Speaking to The Indian Express, a senior banker said speculation over the proposed Financial Resolution and Deposit Insurance (FRDI) Bill has led people to suspect that “deposit-holders’ money may be frozen and utilised for capitalising banks”. “This likely change in deposit-holders’ rights may be causing fear among people who are rushing to withdraw their money,” said the banker, speaking on condition of anonymity.
Garg, however, said there is “absolutely no connection” between the proposed Bill and the shortage. The Bill, which is being examined by a joint Parliamentary committee, has a bail-in clause which proposes to use depositors’ money to bail out their bank or financial institution if it fails.
Garg said the government has Rs 1.75 lakh crore of currency in reserves, which is “sufficient” to take care of the increased demand. The government is closely monitoring the stock with around 4,000 currency chests in the economy, as shortage in pockets of country seem localised and could be partly due to currency management issues, he said.
The Centre had halted printing of Rs 2,000 notes recently as about Rs 6.7 lakh crore worth of notes of this denomination have been pumped into the market, said Garg. The government has no plans immediately to restart production of these notes, he said.
The government is also taking all steps to ensure that ATMs are supplied with cash and to get non-functional ATMs normalised at the earliest, he said.
The RBI said there is sufficient cash in its vaults and currency chests. “Nevertheless, printing of the notes has been ramped up in all the 4 note presses. The shortage may be felt in some pockets largely due to logistical issues of replenishing ATMs frequently and the recalibration of ATMs being still underway. RBI is closely monitoring both these aspects. Further, as a matter of abundant precaution, RBI is also taking steps to move currency to areas which are witnessing unusually large cash withdrawals,” it said in a statement.
However, former finance minister P Chidambaram said the shortage might be on account of supply being arbitrarily reduced. “A government is obliged to provide as much cash as the people need at any given time. Government or RBI cannot arbitrarily control the supply of cash,” the Congress leader said in a series of tweets, adding that if RBI has injected sufficient cash, “it is obliged to tell the people why there is a cash shortage”.
ATM service providers said there has been a drastic fall in meeting the daily requirement, especially since the first week of April. “Till March-end, the daily demand was being met by 90 per cent, irrespective of public or private banks. However, it has reduced since the first week of April and fallen drastically over the last week. Now, the requirement is only being met at 30 per cent by PSUs,” said V Balasubramanian, spokesperson, Confederation of ATM Industry (CATMI).
Experts pointed to various other reasons for the crunch: A mismatch between the rise of currency in circulation and economic growth in the 18 months since demonetisation, lower cash carrying capacity of some ATMs, a drop in digital transactions and dipping trust due to recent loan scams.
“Transactions through ATMs have increased since demonetisation and even the ticket size of these transactions have gone up substantially,” said Navroz Dastur, managing director, NCR Corporation, India & South Asia, a leading ATM service provider.
According to RBI data, as on February 2018, the total value of ATM transactions was Rs 2.47 lakh crore, up from Rs 2.42 lakh crore in October 2016 before demonetisation. The volume of these transactions surged to 718.97 million in February 2018 against 802.62 million in October 2016. At the same time, the number of ATMs also came down to 2.21 lakh in February 2018 from 2.22 lakh in March 2017.
Radha Rama Dorai, managing director, ATM and allied services, FIS, said the crunch is not a new phenomenon.
“Punjab has been facing a crunch since demonetisation and some states in the Northeast have been feeling the pinch over the last four to five months… One of the latest reasons could be the conversion of Rs 2,000 cassettes to Rs 200. The cash carrying capacity of ATMs have gone down in terms of value,” said Dorai.
RBI data suggests that currency with the public has shot up to Rs 17,59,970 crore as on March 30, 2018, compared to Rs 12,64,100 crore in the same period last year, a rise of close to Rs 5,00,000 crore. After demonetisation in November-December 2016, currency with the public fell to below the Rs 10 lakh crore mark to Rs 9,50,000 crore at the start of January 2017.
While the total value of transactions routed through the electronic payment system hit a high of Rs 149 lakh crore in March 2017, up from Rs 94 lakh crore in November 2016, the value of digital business in February 2018 was Rs 115 lakh crore, down from Rs 131 lakh crore in January 2018, according to National Payment Corporation of India (NPCI).
“Another possible trigger is that after the recent loan fraud at the Punjab National Bank, depositors feel that their money in banks is not safe. And when it happens at the grassroots level, it causes a big problem,” said a leading banking expert.