Cash crunch may not resolve any time soon

Cash crunch continued to grip the country for the second consecutive day on Wednesday even as the Ministry of Finance assured to resolve the crisis at the earliest.

Although the currency shortage was prevalent in about a dozen states across the country, the poll-bound Karnataka is the worst hit. An estimated 40% of the 17,683 ATMs across the state failed to dispense cash.

With ATMs drying up the Reserve Bank of India (RBI) stated that it would print lower denomination currencies to tide over the crisis. However, it would take an estimated one month to ensure enough supply of fresh cash into the system, the banking sources said.

Meanwhile, State Bank of India (SBI) has pegged the cash shortage in the country at Rs 1.90 lakh crore. However, after taking into consideration the digital transactions, the actual shortage is estimated at Rs 70,000 crore.

With the RBI printing Rs 2,500 crore worth of notes on a daily basis, it would take at least 28 days for the cash to reach requisite levels as of March 2018.

In a research note, SBI pegged the cash required by the public on March 31, 2018 at Rs 19.4 lakh crore, 10% more than Rs 17.5 lakh crore that is in the hands of public as of date.

"Based on the nominal GDP growth of 10.8% and 9.8% in FY17 and FY18 respectively, currency with the public would have been Rs 19.4 lakh crore by March 18," SBI said.

“We can't confirm as to when new notes would be printed. It depends on the machines and paper available inside the machines at the printing press," an RBI spokesperson told DH.

Officials from various banks said that they are yet to get replenishment of cash from the apex bank.

What led to cash shortage?

According to Finance Minister Arun Jaitley, the sudden shortage of cash was due to an unusual spurt in demand for cash in the last couple of months.

The banking industry sources added that RBI has reduced the supply of currency to the banks since April 11 and has not been supplying Rs 2,000 denomination notes. "It seemed to be a conscious decision by the RBI as people were finding it difficult to find change for Rs 2,000 denomination," a banking official explained.

According to various ATM management companies, the cash carrying capacities of ATMs have come down, as many of them are not calibrated for accommodating new Rs 200 denominations.

“The cash carrying capacity of the ATMs have gone down in terms of value,” Radha Rama Dorai, Managing Director - ATM and Allied Services, FIS said.

SBI also pointed fingers towards the non-circulation of the cash and higher withdrawals from the ATMs. During FY18, ATM withdrawals increased by 12.2% in second half, compared with first half, the bank said in its research note.