“For us, 33000 ATMs are currently dispensing cash. More will come up as day proceeds. You need to talk to RBI (Sic),” said SBI chairman, Arundhati Bhattacharya on Wednesday, when asked how long the cash-shortage will last in ATMs and how well the banking system is ready to face the week when salaries get credited to employee accounts and people rush to ATMs/ branches to draw money.

A file image of people standing at an ATM queue. ReutersA file image of people standing at an ATM queue. Reuters

A file image of people standing at an ATM queue. Reuters

Presently, SBI has about 49,000 ATMs. If 33,000 ATMs are dispensing money, that means about 67 percent of the ATMs of the country’s largest lender (by assets) are dispensing money. Let’s assume that rest of the banks too have managed to fill in cash in at least 50-60 percent of their teller machines. Things must have improved. But, then you can’t fool your eyes. A good number of the 2 lakh ATMs in the banking system continue to remain cash-starved even after three weeks of demonetisation announced by Prime Minister Narendra Modi and there are still stories of pain in daily lives.

Even after 21 days, there are still no visible signs of pain easing significantly, especially in rural areas if one goes by reports (read here, here, here and here)

The problem of Rs 500 notes

Both the Reserve Bank of India (RBI) and the government have been assuring the public that there is enough cash in the banking system and there is no need to panic. Then why do we still see continuing cash shortage on the ground?

The reason is simple. There isn’t enough lower denomination notes (Rs 500 and below) to go around. The government mints have been aggressively printing Rs 2,000 notes, whereas the printing of Rs 500 notes, which is more handy to the common man for daily transactions, is a scarce item. Bhattacharya too attributed to the continuing cash crunch to the shortage of Rs 500 notes.

“The current availability is more of higher denomination notes. People want lower denomination notes, especially Rs 500. It takes time to change printing queues. Initially printing was concentrated on Rs 2,000 so as to provide bulk,” Bhattacharya said.

How long more should it take before banking system gets enough Rs 500 notes? “Talk to RBI,” Bhattacharya replied. The RBI has not provided any details about the printing of Rs 500 notes. A detailed questionnaire sent to the spokesperson of the central bank on the details of cash shortage remained answered till the time of writing this copy.

The 50-day promise

On 13 November, PM Modi had sought 50 days from the public to tide over the hardships post the demonetisation. But, can the PM keep his promise? At this stage, it looks doubtful. Most bankers, economists and financial sector experts said that the cash crunch could last at least until March (three more months beyond what the PM sought) for things to return to normal. A recent report in the Quint, says that the printing of the new Rs 500 note has come to a near-halt at the government’s Nashik and Dewas mints.

The report, which quoted RBI sources, attributes a series of errors on the new Rs 500 notes and the low printing capacity of Nashik and Dewas presses as the reason that promoted the RBI and the government to call off printing of Rs 500 notes. Firstpost hasn’t verified this information independently. But, if indeed this report is true, we are looking at even more delay for the Rs 500 notes coming in sufficient numbers to the rescue of common man. But one need to wait and watch how the scenario unfolds.

“The situation is pretty bad. It shall take 5-6 six months before we reach normalcy,” former RBI deputy governor KC Chakrabarty told Firstpost.

Indeed, the government’s hurry to print the stock of Rs 500 notes and the lack of preparedness while doing so was evident when two versions of Rs 500 notes appeared in the public. There were printing errors on certain features like the shadow of Mahatma Gandhi’s picture, placement of the national emblem, colour shade and border size. This shows noting but lack of preparedness by the central bank as far as Rs 500 notes are concerned.

Salary rush and hoarding

In the coming days, the scenario could turn even tougher for banks given that salaries will get credited to employee accounts and to draw this money, there could be long queues before ATMs and bank branches.

Evidently, there isn’t enough lower denomination notes to go around, which means some of the state governments will find it tough to give salaries. One example is Kerala government, which has already written to the RBI citing the lack of availability of currency to give salaries. The state has sought about Rs 1,200 crore worth notes to give salaries and pensions from the RBI, according to reports in local newspapers.

What will likely add to the pain is the hoarding tendency of people till the time cash withdrawal limits stay. As of now, there is a weekly withdrawal limit of Rs 24,000 at branches and Rs 2,500 daily limits at ATMs. Even Jan Dhan account withdrawals have been capped at Rs 10,000 a month, as a temporary measure. All this would mean that the public who draw cash at ATMs and bank branches would be hesitant to spend it except for basic necessities. When the speed of the circulation of the money is slow, that will add to an artificial cash shortage. That is even the money printed out of mints wouldn’t return to the system fast.

This, in other words means, banks will struggle to fill up their ATMs and permit higher withdrawals. Even now, most banks are seeking the KYC details of their own customers who come to the counter to withdraw money, to ensure the person is the account holder and the need is genuine. But, beyond a point, banker at the counter cannot keep doing this. Until the government presses churn out sufficient number of cash units into the system, the RBI would not be in a position to remove withdrawal restrictions for public. More withdrawal restrictions, such the current one on Jan Dhan accounts, signal danger to the common man and tell him the problem persists and he needs to be cautious with the cash in hand.

For now, the most optimistic assessments show the cash situation to turn normal only by March at the earliest, that is if the four government printing presses work in full capacity in three shifts. Until the time Rs 500 notes are available in plenty, there is an issue. The Rs 2,000 notes repel the average user as there is no change out there. One should hope that the RBI and the government prove these predictions wrong.

First Published On : Nov 30, 2016 13:59 IST

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Demonetisation: Cash crunch unlikely to end soon; PM Modi’s 50-day promise may fail