ATM cash crunch: SBI Research says Rs 200 notes' printing a reason; updates

Even as government and Reserve Bank of India (RBI) asserted that there is no currency shortage, SBI Research on Wednesday pegged the cash shortfall in the system at a whopping Rs 700 billion (Rs 70,000 crore), which is a third of the monthly withdrawals at ATMs.

In a note that comes a day after reports of currency shortages made national headlines, it depended on nominal economic growth, currency with the public and the rise in digital transactions to arrive at the shortfall estimate.

A 9.8 per cent nominal GDP growth would have taken the currency available with the public to Rs 19.4 trillion by March 2018, as against the actual availability of Rs 17.5 trillion, it said, stressing that the gap of Rs 1.9 trillion is not the shortfall.

The proportion of digital transactions stands at a low Rs 1.2 trillion only, much down the immediate months following the November 2016 note-ban. "The apparent shortfall thus could be around Rs 70,000 crore (Rs 700 billion) or even less," it said.

SBI research estimates that Rs 15,291 billion was withdrawn from ATMs through debit cards in the second half of FY18, which is a good 12.2 per cent growth over the previous six months.

Reacting to reports of the currency shortage, it said the currency in circulation has breached the pre-note ban levels of Rs 17.84 trillion and added that such reports are "intriguing and defy logic".

The report explains that a part of the reason why the shortage is being felt could be the introduction and faster- acceleration in printing Rs 200 notes.

"This may have altered the demand for smaller denomination notes in a larger way to possibly substitute for the currency of larger denominations," it said, according to news agency PTI.

"As ATMs have to be replenished more frequently, it can lead to the conjecture that cash is not available," the report added.

The RBI on Tuesday attributed the shortage to "logistical issues" in both replenishing ATMs with cash and also recalibrating those to accommodate the Rs 200 notes.

A cash crunch at ATMs has hit a dozen states, including Uttar Pradesh, Madhya Pradesh, poll-bound Karnataka, Telangana, Andhra Pradesh, Bihar, Gujarat, Maharashtra, Rajasthan, and Punjab. While the Chhattisgarh Chief Minister said his state, too, was facing a cash crunch, with the crisis expected to pass shortly, bank authorities in Jammu & Kashmir and the government in Maharashtra said their respective states were not facing an ATM cash crunch. With automated teller machines (ATMs) drying up, the central government and the Reserve Bank of India (RBI) stepped in to address the currency shortage.

Finance Minister Arun Jaitley attributed the cash shortage to an unusual spurt in demand during the past three months and described it as "temporary", adding that the ATM cash crunch was being "tackled quickly" and that there was "more than adequate" currency in circulation. To fix the ATM cash crunch, the government said that the printing of Rs 500 denomination notes, about 5 billion of which are printed per day, would be increased by five times. Notes worth Rs 700-750 billion (Rs 70,000-75,000 crore) would be printed in a month. 

Here are the top 10 developments on ATM cash crunch across several Indian states:

1. SBI Research pegs cash shortfall at Rs 700 billion: SBI Research on Wednesday pegged the cash shortfall in the system at a whopping Rs 700 billion (Rs 70,000 crore), which is a third of the monthly withdrawals at ATMs, reported PTI. 

The higher level of economic activity in the fourth quarter may have also resulted in more withdrawls at ATMs, the report said in the note.

The report also dismisses notions of the rising demand being due to proposals in the Financial Resolution and Deposit Insurance Bill, saying those were mooted over five months ago.

Read our first report on the ATM cash crunch before it spread across India: Centre, RBI step in as cash crunch hobbles ATMs across various states 

2. Printing of Rs 200 notes to be blamed for cash crunch? The report explains that a part of the reason why the shortage is being felt could be the introduction and faster- acceleration in printing Rs 200 notes.

"This may have altered the demand for smaller denomination notes in a larger way to possibly substitute for the currency of larger denominations," it said, according to news agency PTI. 

"As ATMs have to be replenished more frequently, it can lead to the conjecture that cash is not available," the report added.

The RBI on Tuesday attributed the shortage to "logistical issues" in both replenishing ATMs with cash and also recalibrating those to accommodate the Rs 200 notes.

3. Govt mint halts printing on ink shortage, say unions: Non-availability of ink has resulted in a halt in printing of Rs 200 and Rs 500 denomination banknotes at the Currency Note Press here, an employees' union leader claimed on Wednesday.

"The ink used to print the notes is imported, which is not available now, leading to a halt in printing of these Rs 200 and Rs 500 banknotes," Jagdish Godse, the president of press workers federation said, according to PTI.

He said this can be one of the reasons why there is a shortage of notes at the national level, stating that the press in Nashik Road area is one of the leading ones engaged in printing all the denominations, except the Rs 2,000 bills.

4. Cash position improving, 80% ATMs operating: "Cash position has improved substantially as over 80 per cent of ATMs working normally across the country as against 60 per cent day before yesterday", sources told PTI on Wednesday.

On an average 10-12 per cent of ATMs at a given point of time are usually under maintenance due to one or the other reason and remain out of service. So during normal days 88 per cent of ATMs are working and the rest are under maintenance, sources told PTI. 

They further said the situation has improved substantially with coordinated efforts of Finance Ministry, RBI, banks and cash logistic companies.

Click here for our detailed coverage of the top developments around the ATM cash crunch: ATMs go dry: PM gave our money to Nirav, says Rahul; RBI denies cash crunch 

5. States hoarding high denomination notes? Andhra Pradesh and Telegana, which received highest cash supply in the country in the last two years faces cash shortage, indicating tendency to hoard high denomination currency notes, according to news agency PTI. 

According to the RBI data, during November 2016 to March 2017, Rs 822 billion (Rs 82,168 crore) was supplied to Hyderabad office of RBI, which is the highest amongst all the offices of RBI in the country.

Similarly, during April 2017 to February 2018, Rs 515 billion (Rs 51,523 crore) was supplied to Hyderabad office of RBI, which was again the highest amongst all the offices of RBI in the country.

Even on the Andhra Pradesh government's requests in February this year, fresh currency worth Rs 5,000 crore was despatched to REBI's Hyderabad office with instructions to ensure appropriate distribution of the cash amongst currency chests in the circles so that cases of shortage at specific places do not arise.

Earlier in November 2016, a similar request from Telangana was received and the situation was redressed through supply of cash to the state.

ALSO READ: Cash crunch: Akhilesh alleges international conspiracy against economy

6. Cash crunch began in Southern states: The cash crunch originated in the Southern states, particularly in Andhra and Telangana last month following rumours that money in banks is not safe due to a certain provision in the proposed Financial Resolution and Deposit Insurance Bill 2017, finance ministry officials had said yesterday.

The most contentious part in the Bill is a suggestion to have a "bail-in" provision, which if incorporated result in cancellation of a liability on the part of the bank and can extend to bank deposits.

This Bill also seeks to set up a resolution corporation with powers relating to the transfer of assets to a healthy financial firm, merger or amalgamation or liquidation. The proposed corporation will have the power to use depositors money to save a failing bank.

The government tabled the Bill last August in the Lok Sabha, which was referred to a Joint Committee of Parliament. It was supposed to come up in the Winter Session that was a complete washout.

Click here to read what ATM industry has to say about ATM cash crunch: Banks are unable to meet the demand for cash, says ATM industry 

7. RBI’s stance on cash crunch: The RBI, for its part, said that logistics and recalibration issues were limiting cash replenishment at ATMs. Further, Finance Minister Jaitley said that the "temporary shortage" was caused by a "sudden and unusual increase (in demand)" in some areas and that it was being "tackled quickly". With the RBI and banks blaming cash management companies for ATMs running dry, ATM industry representatives said that it was the banks that were unable to meet the demand for cash. They said banks had not been able to meet their indent, the daily calculation of cash required, for the past four-five days. 

8. Opposition attacks Narendra Modi-led govt: Meanwhile, as people lined up at ATMs, the currency shortage issue went political. Opposition leaders, including Congress President Rahul Gandhi, demanded answers from the Narendra Modi-led government over the ATM cash crunch. Speaking in his Lok Sabha constituency of Amethi, Gandhi accused Modi of destroying India's banking system and said that the "terror of note ban" had gripped the country again. Taking to Twitter, the Congress chief alleged that Modi had "snatched" the Rs 500 and Rs 1,000 currency notes from every Indian's pockets and "given" them to Punjab National Bank fraud-accused Nirav Modi, who is currently absconding from the country's law enforcement agencies.  
 

9. Madhya Pradesh faces ATM cash crunch for third day in a row: For a third straight day, parts of Madhya Pradesh continue to face ATM cash crunch. Amid the currency shortages, a resident of Bhopal told news agencies: "I have been to more than 12 ATMs since yesterday, but neither had money, we are facing a lot of problems due to this (sic)."

For a second consecutive day on Tuesday, several parts of Madhya Pradesh had seen a large number of ATMs failing to dispense cash. 

Situation in Chhattisgarh to be normal soon; Maharashtra, J&K not facing 'cash crunch': Chhattisgarh Chief Minister Raman Singh on Tuesday said his state had also been witnessing currency shortages but expressed hope that the crisis would be resolved shortly. 

Several ATMs across the Kashmir valley had gone dry after deficient cash supplies hit the currency chests a few days ago. Following three consecutive holidays last weekend, the cash situation had further deteriorated. However, the Jammu and Kashmir Bank on Tuesday said that it had restored sufficient cash supply in the Valley with the timely support of the RBI.

Despite reports saying that Maharashtra was also hit by the ATM cash crunch, state Finance Minister Sudhir Mungantiwar said on Tuesday that the government had not received any reports of a cash crunch in the state. 

10. Five-fold increase in printing of Rs 500 notes to meet ATM cash crunch: Amid the currency shortages in various parts of the country, the government has decided to increase printing of Rs 500 denomination notes fivefold, said Economic Affairs Secretary Subhash Chandra Garg. "We have taken steps to increase the supply of currency in case the demand were to go up further," said Garg, adding, "To give you an example, Rs 500 notes -- we print about 5 billion of notes per day. We have taken steps to raise this production five times."  

Garg said that a "supply of about Rs 25 billion worth of Rs 500 notes per day" will be available "very soon", adding that the supply would be about "Rs 700-750 billion" in a month. Garg assured that "these notes alone can more than meet the demand of any month".  

As RBI cuts down on Rs 2,000 notes, a number of ATMs still can't dispense Rs 200 notes: A source haveing knowledge of the RBI's workings has told the Business Standard that the central bank had stopped or slowed down the printing of Rs 2,000 notes. Instead, according to the source, the RBI wanted to increase lower denomination notes, which has caused the present crisis as the replacement is not easy. 

However, while the RBI looks to favour lower denomination notes over the Rs 2,000 notes, the ATM infrastructure in the country and the speed (or lack thereof) at which it is being upgraded to handle the Rs 200 notes could be another pain point. The delay in the recalibration of ATMs to dispense Rs 200 notes is understood to be one of the reasons behind the current ATM cash crunch. Sources said that following the introduction of the Rs 200 notes by the RBI, it was decided that the recalibration of ATMs for the new notes would be done at a faster pace. However, they added that the drive got delayed in some parts of the country.  

The RBI said shortage "may be felt" in some pockets, largely due to logistical issues of replenishing ATMs frequently and the recalibration of ATMs being still underway.

Further, an RBI official said that usually, there is a cash shortage problem at the start of the financial year because of festivals such as Bihu, Vishu, Sankranti, and the Bengali New Year, among others, which pushed up localised demand for cash. "The RBI is working with banks to sort out logistical issues. Banks have been asked to work with their cash management companies to supply adequate cash in affected areas," said the official.   

Watch: ATMs in India running dry amid cash crunch 

 

With agency inputs