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Cash Shortage In India Hints Push Towards Digital Payments

With several ATMs across India continuing to suffer from cash shortage, it is being speculated that it is a deliberate measure to push Indians to adopt cashless transactions.

The shortage is arising due to the limited cash supply being received by the banks from the Reserve Bank of India (RBI) according to some bank officials. In the month of March, the RBI made remittances to banks only five times as opposed to the 12 which was required.

In a statement, a top bank official who preferred to be anonymous said,

Banks get supply of cash from RBI and also in the form of market receipts. The traders and businesses deposit their money from daily activities into banks. But due to cash crunch and increased digital transactions, the deposits have come down

In particular, the supply of lower denomination notes – Rs 100 and Rs 500 is still poor according to local media reports. The remonetization roll out has been slow in the months succeeding the demonetization, with the total currency circulating in the economy so far reaching Rs 13.12 trillion as on March 24 versus the Rs 17.97 trillion before demonetization.

The Financial Express

Some bank officials have stated that while the cash supply situation had been largely normal in January and February, the removal of limits on March 13 subsequently affected supply in some cities. There are also reports of a decline in the amount of currency production. Private banks are said to be mulling over a proposal to reduce the number of ATMs being operated by each bank and a decision is likely to be made in a couple of months. Public sector banks are being more conservative and are said to be evaluating the situation before taking a decision.

According to a report by India’s largest bank, the State Bank of India (SBI) cash transactions have not seen a sharp rise in the country despite the removal of withdrawal limits. The report states that the week after the limits were removed, cash withdrawals dropped by Rs 20 billion.

The SBI research report further highlights data from the Reserve Bank of India (RBI), India’s central bank showing that cash withdrawals have been dropping on a continual basis.

Withdrawals were at a peak during the January 13 weekend at Rs 528 billion which has since come to Rs 325 million in weekend of March 24.

The likely reason for such decline could be the increased scrutiny of cash transactions and the heavy push towards digital payments. The government has taken a number of measures to push cashless payments such as Digi-DhanMela to promote usage of apps like Bharat Interface for Money (BHIM), and other formats like UPI and Unstructured Supplementary Service Data (USSD).

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