ATM cash crunch: SBI report says currency shortfall at Rs 70,000 crore
An SBI report has said that India's currency shortfall may be Rs 70,000 crore, which is nearly three times the government's estimate.
- Apr 18, 2018,
- Updated Apr 19, 2018 12:58 PM IST
An SBI report has said that India's currency shortfall may be Rs 70,000 crore, which is nearly three times the government's estimate. The government had earlier claimed that the 'sudden and unusual' spike in cash demand has been due to a Rs 45,000 crore demand for currency in the economy in the past 2 weeks as against the normal Rs 20,000 crore, implying the shortfall at just Rs 25,000 crore.
Curiously, despite the widespread shortage of currency in most of the country, the SBI report calls the current situation "The (Non) genuity of cash crunch". Banks in Delhi/NCR and Mumbai, the two biggest financial centres have said they received in a week's span the amount of currency they require on a daily basis. Banks have been writing to the regulator RBI regarding the shortage of notes for the past 3-4 weeks.
Although, the currency in circulation is at Rs 18.29 lakh crore, which is well over Rs 17.98 lakh crore at the time of note ban, it is yet to catch up with India's nominal GDP growth. According to the SBI report, based on the nominal GDP growth of 10.8 per cent and 9.8 per cent in FY17 and FY18, currency with public would have been Rs 19.4 lakh crore by March 2018.
However, currency with public right now is at Rs 17.5 lakh crore which shows a gap of Rs 1.9 lakh crore.
The report also points to a lack of circulation of higher denomination currency notes as a possible reason for the ongoing cash crunch. It adds that the ATM withdrawals increased by 12.2 per cent in the second half of FY18 as compared to H1.
Contrary to reports in the media which blamed harvest season festivals like Bihu and Baisakhi, the SBI reports says that cash withdrawals in H2 are always more than the H1 due to many reasons like festival and procurement season that fall in H2.
SBI report takes into account the increase in digital modes of payment that compensates some part of the existing gap. "The shift to digital modes could be at least Rs 1.2 lakh crore. The apparent shortfall thus could be around Rs 70,000 crore or even less," it said.
The report, however, does not take into account a possible fall in digital transactions due to RBI's mandatory know-your-customer (KYC) compliance norms for e-wallets which came into effect from March 1.
The SBI Ecowrap report comes a day after cash crunch was reported in various states across the country. According to the report, the currency with public has now reached around 96 per cent of currency in circulation due to which cash in hand (cash at ATM etc) with banks has declined.
On Tuesday, the Economic Affairs Secretary Subhash Chandra Garg told reporters that the government plans to increase the supply of cash in the banking system. "The currency printing will increase from Rs 500 crore to Rs 2,500 crore per day of Rs 500 note. So in a month, we will be printing about Rs 70,000-Rs 75,000 crore," Garg had said.
The Finance Ministry had blamed the cash crunch on the 'unusual spurt in currency demand' in last three months. "In the first 13 days of the current month, the currency supply increased by Rs 45,000 crores," it said in a circular.
An SBI report has said that India's currency shortfall may be Rs 70,000 crore, which is nearly three times the government's estimate. The government had earlier claimed that the 'sudden and unusual' spike in cash demand has been due to a Rs 45,000 crore demand for currency in the economy in the past 2 weeks as against the normal Rs 20,000 crore, implying the shortfall at just Rs 25,000 crore.
Curiously, despite the widespread shortage of currency in most of the country, the SBI report calls the current situation "The (Non) genuity of cash crunch". Banks in Delhi/NCR and Mumbai, the two biggest financial centres have said they received in a week's span the amount of currency they require on a daily basis. Banks have been writing to the regulator RBI regarding the shortage of notes for the past 3-4 weeks.
Although, the currency in circulation is at Rs 18.29 lakh crore, which is well over Rs 17.98 lakh crore at the time of note ban, it is yet to catch up with India's nominal GDP growth. According to the SBI report, based on the nominal GDP growth of 10.8 per cent and 9.8 per cent in FY17 and FY18, currency with public would have been Rs 19.4 lakh crore by March 2018.
However, currency with public right now is at Rs 17.5 lakh crore which shows a gap of Rs 1.9 lakh crore.
The report also points to a lack of circulation of higher denomination currency notes as a possible reason for the ongoing cash crunch. It adds that the ATM withdrawals increased by 12.2 per cent in the second half of FY18 as compared to H1.
Contrary to reports in the media which blamed harvest season festivals like Bihu and Baisakhi, the SBI reports says that cash withdrawals in H2 are always more than the H1 due to many reasons like festival and procurement season that fall in H2.
SBI report takes into account the increase in digital modes of payment that compensates some part of the existing gap. "The shift to digital modes could be at least Rs 1.2 lakh crore. The apparent shortfall thus could be around Rs 70,000 crore or even less," it said.
The report, however, does not take into account a possible fall in digital transactions due to RBI's mandatory know-your-customer (KYC) compliance norms for e-wallets which came into effect from March 1.
The SBI Ecowrap report comes a day after cash crunch was reported in various states across the country. According to the report, the currency with public has now reached around 96 per cent of currency in circulation due to which cash in hand (cash at ATM etc) with banks has declined.
On Tuesday, the Economic Affairs Secretary Subhash Chandra Garg told reporters that the government plans to increase the supply of cash in the banking system. "The currency printing will increase from Rs 500 crore to Rs 2,500 crore per day of Rs 500 note. So in a month, we will be printing about Rs 70,000-Rs 75,000 crore," Garg had said.
The Finance Ministry had blamed the cash crunch on the 'unusual spurt in currency demand' in last three months. "In the first 13 days of the current month, the currency supply increased by Rs 45,000 crores," it said in a circular.