India has fallen into a cash crisis, bringing back memories of the cash crunch during the demonetization days. Many States like Karnataka, Maharashtra, Andhra Pradesh, Delhi, Rajasthan, Uttar Pradesh, Madhya Pradesh, Gujarat and Telangana are facing a cash crunch.
The cash crunch seems to have caught the RBI off-guard, as ATMs have gone dry. The Finance Minister Arun Jaitley has said that the cash crunch is “Temporary” and there is enough currency in circulation and also with banks. This temporary shortage will be tackled quickly.
Banks and cash management firms are blaming RBI for the crisis. RBI has said that there’s no currency crisis and vaults and currency chests are well-stocked. There’s surplus cash in some States and this cash will be transferred to States, suffering from a cash crunch. This should take about 3 days.
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The Government suspects hoarding of Rs 2,000 notes and has increased the printing of Rs 500 notes. The printing of Rs 500 notes has gone up five-fold. The Rs 2,000 note is a high-value note and it’s really convenient to hoard it. Citizens are hoarding these notes instead of depositing them with banks.
RBI in order to promote cashless transactions, has stopped the supply of Rs 2,000 notes and ATMs are operating at 50% capacity. So what does this mean? Banks are saying that whatever cash they load into the ATM goes out, and doesn’t come back over the counter.
An ATM has 4 cassettes which can load around Rs 65 Lakhs. One cassette is filled with Rs 2,000 notes, 2 cassettes with Rs 500 notes and one cassette with Rs 100 notes. Bankers have made claims that RBI is not supplying Rs 2,000 notes, leaving 45% of ATM capacity unused.
The combination of citizens hoarding Rs 2000 notes and the RBI stopping the supply, has led to a cash crunch at ATMs.
Karnataka is going to the polls on May 12th. Its common practice to hoard cash before the elections as campaign expense is high. This happens across parties and candidates, as cash is used to lure voters.
With elections round the corner in Karnataka and elections in Andhra Pradesh and Telangana less than a year from now, hoarding of cash has led to a severe cash shortage at ATMs in the South.
Many festivals like Baisakhi, Bihu and other harvest festivals, are pushing up cash demand in many states. Assam celebrated Bihu on Saturday, and many citizens withdrew cash for the festival. Festivals have led to severe cash crunch at ATMs.
After the note-ban, the Government issued new Rs 2,000 and Rs 200 rupee notes. These notes were different in size compared to the old 500 and 1000 rupee notes, withdrawn. To accommodate the new rupee notes, ATM machines had to be recalibrated, with banks taking time to do so.
Rumors were spread in Andhra Pradesh and Telangana that the passage of the Financial Resolution and Deposit Insurance (FRDI) Bill would bankrupt banks. FRDI Bill aims to establish a "Resolution Corporation" which will classify service providers like banks and insurers, based on the risk of failure. Check out the FRDI Bill.
This rumor made citizens of Andhra Pradesh and Telangana line-up at ATMs and withdraw cash. Be Wise, Get Rich.
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