ATMs run out of notes: Here's the reason behind the massive cash crunch

Although the rate of cash circulation has surpassed the pre-demonetisation level, it is not in tandem with the rate of economic growth

 

Automated Teller Machines (ATMs) across various states are running dry with the present situation reminiscent of demonetisation of high-value currency notes one-and-a-half years back.

States, including Gujarat, Uttar Pradesh, Madhya Pradesh, Bihar, Andhra Pradesh, Manipur and Telangana, have reported shortage of cash at ATMs. A stock-taking analysis submitted by the Reserve Bank of India (RBI) found that the rate of cash withdrawal was much higher than the rate of cash deposits in Andhra Pradesh, Bihar, Karnataka, Maharashtra, Rajasthan, Uttar Pradesh, Madhya Pradesh, and Telangana, among other states. Complaints of cash crunch have been reported from semi-urban and rural regions of the states.

Although the rate of cash circulation has surpassed the pre-demonetisation level, it is not in tandem with the rate of economic growth.

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 cash in circulation-to-GDP ratio before demonetisation stood at 11.6% and it has declined to 10.7% at present.

The Centre on Tuesday admitted to the cash crunch and blamed it on uneven distribution of currency by the RBI across states. “There is an issue of disparity. Some states have less currency and the others have more. Government has formed state-wise committee and RBI has also formed a committee to transfer currency from one state to the other. In two-three days, this problem will be resolved,” Minister of State in Finance Shiv Pratap Shukla told TV channels.

Gujarat deputy chief minister Nitin Patel told a newspaper few days back that the state is in touch with the RBI to resolve the issue of cash crunch. “In Gujarat, the currency chests were not getting adequate supply of cash from the RBI,” said an executive director of a public sector bank. ATMs dried up in north Bihar due to issues related to transportation of cash from currency chests located in other parts of the state, officials said.

The Manipur government also wrote a letter to the finance ministry apprising them of acute shortage of cash in the state.

Senior finance ministry officials, who held a meeting with RBI's currency circulation division, banks and state government officials on Thursday, blamed the shortage of cash to various factors, including mismanagement of cash flow by banks, recalibration of ATMs to support the new currency notes, and logistical issues.

Public sector bank executives also said there is a spurt in demand for cash to make payments for agricultural activities as well.