Return of Demonetisation days: Cash crunch at ATMs across India, Jaitley blames ‘sudden and unusual’ withdrawals

Reports of cash crunch at Automated Teller Machines (ATMs) across various states have brought back memories of November 2016 demonetisation, when Prime Minister Narendra Modi, in a midnight announcement said old notes of Rs. 500 and Rs. 1000 will be scrapped.

States, including Gujarat, Uttar Pradesh, Madhya Pradesh, Maharashtra, Bihar, Andhra Pradesh, Manipur and Telangana, have reported shortage of cash at ATMs. The ATMs are either not working or are out of cash.

The government is checking with banks and the Reserve Bank of India to ensure adequate supply of currency. A stock-taking analysis submitted by the Reserve Bank of India (RBI) found that the rate of cash withdrawal was much higher than the rate of cash deposits in Andhra Pradesh, Bihar, Karnataka, Maharashtra, Rajasthan, Uttar Pradesh, Madhya Pradesh, and Telangana, among other states. Complaints of cash crunch have been reported from semi-urban and rural regions of the states.

Finance Minister Arun Jaitley today said there is “more than adequate” currency in circulation and the temporary shortage in certain states caused by ‘sudden and unusual increase’ is being “tackled quickly”.

Minister of State for Finance Shiv Pratap Shukla said, “The Government has set up state-wise committee and RBI has also formed a committee to transfer currency from one state to other because for money transfer you need the permission of the RBI. It (the shortage) will be solved in 2-3 days”.

Many bank customers said they had lost faith in the banking system in the wake of the proposed FRDI Bill and frauds like the PNB scam.

A certain provision in the proposed Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 sparked a rumour that the money would not be safe in banks if the Bill became a law. Even though the government clarified that there could be no such consequence, the rumour drove people to ATMs and bank branches to withdraw money.

Several bank loan scams coming to light led to more rumours that certain banks could fail. People made a run on banks, withdrawing money from ATMs and banks fearing the banks could collapse. Even though there is no risk to banks due to either of these factors, the rush to withdraw money created a shortage of currency. But if more and more people rush to take money out of banks and ATMs, it could lead to a bank run. A bank can collapse within days due to a countrywide bank run.