Cash hoarding during Lok Sabha Elections dry up ATMs

Cash crunch is once again haunting customers of various banks across Bengaluru as ATMs are not dispensing enough cash. In the past few days, ATMs across Bengaluru have gone either cashless or dispensing limited cash, reminding the public of hardship faced during the demonetisation during late 2016.

The customers of various banks are reporting huge inconvenience in withdrawing required amount of cash at the ATMs, as the country is going through general elections for 17th Lok Sabha.

According to the banking industry sources, the directions of the Election Commission (EC) dated March 19, 2019, coupled with the hoarding of high-value notes by the political parties has worsened the cash crunch situation. The banks, which were already walking on the tight rope post-IL&FS fiasco in September last year, are not dispensing enough cash. The issue has been aggravated by RBI’s decision to stop printing Rs 2,000 notes since January this year.

The RBI’s repo rate operations also reveal the same. The average liquidity deficit -- the difference in the amount that banks borrow and deposit with RBI on daily basis -- for the week rose to a two-month high of Rs 85,091 crore in the previous week, which was Rs 49,314 crore higher than the preceding week. The net outstanding liquidity deficit rose to Rs 1.01 lakh crore on April 19, the highest level since end Mar’19.

According to a directive put out by the EC, all the bank branches have been asked to track the transactions in the bank ATMs and the branches and report any suspicious transaction immediately.

“The notification regarding the conduct of elections of 2019..., the banks are supposed to furnish information on unusual/suspicious transactions during the election process on daily basis to District Election Officer,” the circular, accessed by DH, said.

The banking industry sources said that this has led to a reduction in the availability of cash in the banks. “This has obviously added to our issues, after hoarding by the political parties. Imagine the cash being caught on a daily basis by officials is estimated to be less than 1% of the total hoarded cash. It has added to our liquidity woes,” a senior public sector banker told DH on condition of anonymity.

Last year, during Diwali, the country reeled under a similar cash crunch, as the country was gearing up for elections in three key Hindi-heartland states -- Rajasthan, Madhya Pradesh, and Chattisgarh.

Customers across public and private sector banks that DH spoke to complained about the issue. “I wanted to withdraw Rs 10,000. I could only withdraw Rs 1,000 -- that too in the Rs 100 denomination notes,” one of the many aggrieved customers told DH.

Last financial year, the latest available data with RBI shows, the value of Rs 2,000 notes in circulation jumped by a mere 2%, as against jump of 163% jump in the Rs 500 denomination notes. Of Rs 13.31 lakh crore currency in circulation on March 31, Rs 6.73 lakh crore was in the denominations of Rs 2,000.

Indian banks have been constantly reeling under liquidity crunch -- the shortage of available funds -- since seven months after IL&FS default sucked out a whopping Rs 90,000 crore from Indian financial system.