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The government today said the Reserve Bank will increase five-fold the printing of Rs 500 notes to deal with cash shortages in certain parts of the country, fuelled partly by hoarding of high denomination currency.
Cash shortage has been reported from Andhara Pradesh, Telengana, Karnataka, northern Bihar and certain other parts of the country, apparently on apprehensions about safety of deposits due to recent spurt in banking frauds.
Observing that there is unusually high demand for currency, Garg said there are multiple factors for this including tendency to hoard cash and it is stronger in some parts of the country.
"There is also a perception that there may be shortage of currency in the future. So people have started withdrawing and it has contributed to the crisis," he said. "We keep adequate stock of currency notes, which is one-sixth of the currency in circulation."
Currently the currency in stock is about Rs 2 lakh crore and the reserves are adequate to meet any unusual spurt in demand, he said.
The unusual spurt in currency demand since January was also met through reserves, he added.
"So in a month, we will be printing about Rs 70,000-Rs 75,000 crore. This should give you assurance that we are geared up to meet the rising demand," he said.
Garg further said the government will make all efforts that there is no shortage of cash irrespective of the level of demand.
On ATMs going out of cash, he said some of them may have some problem, but this is a temporary phenomenon.
"On a given day, one per cent of the ATMs are usually out of order. And it could be a local management issue not a countrywide phenomena," he said.
On Rs 2,000 notes, Garg said there are about Rs 6.7 lakh crore worth of Rs 2,000 notes in the system and they are more than adequate to meet the transaction demand.
"Rs 2,000 notes are circulating but of late we have noticed there has been lesser inflow coming back in the circulation. We have not got this investigated, but you can assume this is the one note which most suitable to hoard as this is a high value note. But this does not affect the overall supply of Rs 2,000 notes," he said.
Garg also dismissed rumours that the cash shortage is related to the recent scams in the banking sector, including one allegedly perpetrated by Nirav Modi or the Financial Resolution and Deposit Insurance (FRDI) Bill.
"(The crunch) may be some states started distributing more cash benefits rather than otherwise. Some psychological feeling why not keep some cash in pocket rather than keeping in banks. It has nothing to do with recent scams," Garg said.
He said there are rumours floating around suggesting currency shortage in the country but the fact is otherwise.
Usually, he said the currency supply every month used to be around Rs 20,000 crore but in the last two-three months, it has doubled to Rs 40,000-Rs 45,000 crore.
In the first 13 days of April itself there has been demand of Rs 45,000 crore, he added.
"This unusual spurt in demand is seen more in some parts of the country like Andhra Pradesh, Telangana, Karnataka, MP and Bihar," it noted.
"Our banking is totally safe and people should not have in any apprehension in keeping deposits," he said.
areas where shortage was witnessed.
"As of March, the currency in circulation was Rs 18.29 lakh crore as against Rs 17.89 lakh crore just before demonetisation," he added.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)