Banks anticipate frantic withdrawal of cash

Easing curbs, salary disbursal may lead to note shortage

With the Reserve Bank of India (RBI) easing the restrictions on cash withdrawals from Tuesday, currency shortage could snowball into a fresh crisis in the week ahead.

An RBI circular issued to all banks on Monday said that curbs on cash withdrawals had affected deposits and hence withdrawals beyond the Rs.24,000 limit could be allowed after Tuesday, but preferably in higher denominations such as Rs.2,000 and Rs.500 notes, it said.

Banking sector sources told The Hindu here that but for issuing the circular, corresponding changes were not made in the software of the banks till Tuesday. Though some banks had credited the salary for November into their employees’ accounts, informal directions had been given to limit the cash withdrawals to Rs.10,000 a day.

The circular issued for raising the limit may trigger frantic cash withdrawals. There is a growing tendency, mainly among small businessmen and traders, to hoard Rs.100, Rs.50 and Rs.20 notes, anticipating a scarcity in the coming days.

Moreover, banks will have to meet the salary commitment of a large chunk of the 5.5 lakh State government employees, 3.5 lakh service pensioners, as well as a legion of employees of shops, commercial establishments and schools who draw their salary through banks. This would eventually lead to a spurt in demand for currency of all denominations from December 1. Banks are now vesting their hopes on the RBI assurance that their currency chests will be replenished from time to time and there will be no shortage as anticipated.

As per the estimates of the Finance Department, the government, on an average month, requires Rs.750 crore on the first day of the month to disburse the salary and pensions, Rs.700 crore on the second day and the demand will taper to Rs.250 crore on the seventh day.

The cash requirement would be much higher in the case of banks. Sustaining the supply in banks as well as ATMs will not be an easy task. This would force the banks to informally restrict the cash payments and set a much lower limit for cash withdrawals, sources said.

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Printable version | Mar 27, 2020 10:11:01 PM |

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