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Acute withdrawal symptoms amid cash and carry ahead of elections

In other parts of the country, the cash crunch was not as severe as in the South, where two more states — Andhra Pradesh and Telangana — face assembly polls in less than a year.

Updated: Apr 18, 2018, 08.14 AM IST
Cash dispensers in parts of India, particularly the South, began to run out of currency notes ahead of the imminent Karnataka elections amid concerns over a federal bill proposing the ‘bailing-in’ of stressed lenders by depositor funds, and the likely hoarding of high-denomination bills in the poll-bound peninsula.

In other parts of the country, the cash crunch was not as severe as in the South, where two more states — Andhra Pradesh and Telangana — face assembly polls in less than a year. In Tamil Nadu, the situation was relatively normal, with no reports of panic cash withdrawals.

Politics may have played a role in determining the supply of currency notes in the poll-bound states.

Bankers in Andhra Pradesh, Telangana and Karnataka said that more than 60% of the cash, predominantly in high-denomination Rs 2,000 bills, was not returning to the system, and that they have flagged the trend to the regulator.

A senior central bank executive in Hyderabad said the Reserve Bank of India was looking into likely cases of large-scale hoarding of cash by high net-worth individuals with links to politicians in the three states.

The sudden surge in withdrawals in Andhra Pradesh and Telangana was attributed to widespread apprehensions over the proposed Financial Resolution and Deposit Insurance (FRDI) bill, coupled with an increased shift of savings towards gold and real estate purchases. There are concerns that some provisions of the FRDI bill may use depositors’ cash to help out struggling banks.

North Block stepped in to calm concerns that the crunch amounted to an encore of the demonetisation in the December 2016 quarter.

“The temporary shortage caused by ‘sudden and unusual increase’ in some areas is being tackled quickly,” finance minister Arun Jaitley tweeted after reviewing the situation. “Overall, there is more than adequate currency in circulation and also available with the banks.”

In Karnataka, the cash shortage is visible for the past two months, and is becoming acute in the runup to elections in May. “In recent days, we received complaints of ATMs in Karnataka drying up within two hours of replenishing. We stepped in with more cash, but the problem has continued. We are clueless as to where all this cash is going,” said a senior bank executive.

Karnataka Bank MD MS Mahabaleshwara said the lender was not facing issues relating to cash supply. “The issues could be one related to distribution. There is enough cash available in the system,” he said.

He, however, pointed to a major technology flaw — the shortage of notes-compliant ATMs. They have to recalibrate ATMs to fit the new currency notes into them. “ATM is apermanent infrastructure. What we will need to do is to design notes that are ATM-compliant, rather than recalibrate the ATMs. In such an event, we will only need to change the software, not hardware,” Mahabaleshwara said.

Canara Bank in Bengaluru has formed a network team to monitor cash issues at ATMs. It is using the cash it gets from the RBI and at branches to load ATMs attached to branches and other off-site ATMs. “With strategic planning, we are managing three-fourths of our ATM network with cash supply.

However, we have noticed that the Rs 2,000 notes withdrawn from ATMs and branches are not coming back as they used to before leading to the currency shortage at ATMs,” said MM Chiniwar, general manager at Canara Bank.

A senior State Bank of India executive in Hyderabad said that the bank on Tuesday received the go-ahead from the central bank to shift cash from surplus states to deficit states, doing away with existing rule of formally obtaining the regulator’s prior approval for cash movements.

Out of 37 ATMs in eight to ten markets in south and central Delhi, only 15 were dispensing cash, mostly in Rs 500 and Rs 200 denominations. While many ran out of cash during the day or a day before, some of them have not been dispensing cash for a longer period of time, for reasons ranging from maintenance work to technological issues.

In Chandigarh and its satellite townships, high denomination currency notes are in short supply, a senior banker at a private lender told ET on conditions of anonymity. Stray cases of ATMs running out of cash were reported from Salt Lake in Kolkata, prompting West Bengal Chief Minister Mamata Banerjee to wonder whether there was a ‘financial emergency’.

“Seeing reports of ATMs running out of cash in several States…..Reminder of Demonetisation days,” she tweeted.

In neighbouring Bihar, some bank customers reported a cash crunch. “I wanted to withdraw Rs 10,000, but could get only Rs 4,000,” acustomer told ETover the phone from Patna. Bankers attributed the temporary crunch to the marriage-season demand.

“This is marriage season and customers withdraw large amounts. On the contrary, deposits are low,” said a bank executive working at Dumraon in Buxar district.

The cash situation appeared normal in Gujarat. In Assam, where banks re-opened after the Bihu holidays, there were reports of shortages in higher-denomination notes.

Tamil Nadu, meanwhile, remained unaffected, officials at public and private sector banks claimed. The circulation and recycling of cash into the banking system from cash deposits and withdrawals had not seen any noteworthy change, they said.

N Kamakodi, managing director of City Union Bank, said that due to problems in ATM connectivity with the bankruptcy filing by Aircel, there had been a dip in Internet connectivity in ATMs at remote locations. However, there was no fall in cash availability in the system. “We have not closed any ATM due to non-availability of cash,” Kamakodi said.

“We have not been facing any concerns with availability of cash at any of our ATMs or bank branches across Tamil Nadu. We are tracking the developments closely, but none of our ATMs are offline or non-functional due to any problem of low cash supply,” an official of Indian Overseas Bank in Chennai, said.

Thomas Franco, general secretary of All India Bank Officers’ Confederation, alleged that the government and the RBI were slashing cash supplies into the system to ensure more digital transactions. Franco said that people preferred cash transactions primarily owing to convenience, and to avoid charges levied on digital transactions.

Separately, former union cabinet secretary EAS Sarma hinted in his letter to the finance minister that the crunch is neither localised, nor a recent occurrence.

(With inputs from ET reporters in Ahmedabad, Chandigarh, Guwahati, Kolkata, Patna, and New Delhi)
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