People hoarding cash amidst lockdown uncertainty

People hoarding cash amidst coronavirus lockdown uncertainty

Representative image. (Credit: iStock Photo)

In what seems to be a panic reaction to the lockdown, people across the country appear to be stocking up on cash. 

According to a DH analysis of data available with the Reserve Bank of India (RBI), currency with people has increased by Rs 1.35 lakh crore (6%) since the collapse of the private sector lender Yes Bank in early March.

Currency with the public stood at Rs 23.91 lakh crore as on April 10, 2020, compared to Rs 22.56 lakh crore at the beginning of March.

Yet another data point shows that the absolute increase in currency with the public in the first 10 days of the current financial year has been 25% more than what it was the previous year, jumping by Rs 41,583 crore compared with Rs 33,395 crore in the corresponding quarter last year till April 10 on a year-to-date basis.

Currency with the public is arrived at after deducting cash with banks from total currency in circulation.

Analysts say people started hoarding cash more after the lockdown period was announced -- which can be explained by the decrease in the demand deposits since March 27, according to RBI data.

"There is much to do with the lockdown. Given the uncertainty, people would want to keep money with them," says Kavita Chacko of CARE Ratings.

This is explained by the sudden drop of Rs 1.36 lakh crore in the demand deposits since March 27, around the same time the lockdown was announced.

Despite this, the banks are flush with the funds, primarily because of investors moving the money towards time deposits. 

The time deposits -- which are considered usually low-risk, low-return asset classes -- have seen a surge in the inflows as investors are averse to investing in the equity markets -- which have been plagued by the bear.

The RBI data shows that since March beginning, inflows into time deposits have surged by Rs 3.69 lakh crore (3%) to Rs 129.59 lakh crore.