SBI research puts cash crunch in system at `70,000 crore

A day after reports of currency crunch that made national headlines, a research report of the largest public sector bank, State Bank of India (SBI), on Wednesday pegged the cash shortfall in the system at a whopping Rs 70,000 crore, which is a third of the monthly withdrawals at ATMs.

Even as both the Government and the Reserve Bank of India (RBI) have claimed that there is no shortage of currency, the SBI estimated a huge shortfall of cash, saying it depended on nominal economic growth, currency with the public and the rise in digital transactions to arrive at the shortfall estimate.

As per the note released by the SBI, the proportion of digital transactions stands at a low Rs 1.2 trillion only, which is comparatively down the immediate months following the November 2016 note-ban. “The apparent shortfall thus could be around Rs 70,000 crore or even less,” it said.

The note also further estimated that Rs 15,291,00 crore withdrawn from ATMs through debit cards in the second half of FY18, which is a good 12.2 per cent growth over the previous six months.

“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, adding that the gap of Rs 1.9 trillion is not the shortfall.

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

The research note 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.

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

The RBI had on Tuesday attributed the shortage to logistical issues in both replenishing ATMs with cash and also recalibrating those to accommodate the Rs 200 notes. “The higher level of economic activity in the fourth quarter may have also resulted in more withdrawals at ATMs,” the report said in the note.

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

But it can be noted that 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 FRDI Bill 2017, Finance Ministry officials had said.

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 transfer of assets to a healthy financial firm, merger or amalgamation or liquidation. The proposed corporation will have power to use depositors money to save a failing bank.