The chart depicts a typical wholesale cash cycle, where CLCs help banks distribute the cash they receive from the RBI’s printing press(es) and mint(s) to their branches and ATM networks.
According to the RBI’s Annual Report for 2017-18, there are 3,975 currency chests across the country. The State Bank of India operates 2,575 of these, while private banks operate 172 currency chests.
Business Standard sent queries to the RBI, but did not receive comments at the time of publication.
Currency management “is still extremely inefficient in India, compared to other countries,” says Anush Raghavan, vice-president of CMS Info Systems, the biggest CLC in the country servicing about 55,000 of the total 213,000 ATMs.
According to RBI data, as of September 28, there were Rs 18.95 trillion notes and coins worth Rs 249.54 billion in circulation.
“Ideally, under the retail cash cycle, money that is picked up by CMS from retail outlets will be deposited back to bank branches/ATMs, instead of the currency chest again. In today’s day and age, I don't think the country needs so many currency chests,” he said.
An executive requesting anonymity said that many of these currency chests that banks operate remain empty or non-operational.
“Many state-run banks found use for their chests only during demonetisation, when they had to deposit the surplus notes,” the executive said.
Once the cash is collected by CMS, it will be sent to its vault facility. There are about 220 types of vault facility across the country. After which it will be distributed to the branch or ATMs, that the banking clients of CMS decide.
CMS enables cash pickup/drop-offs for over 45,000 retail touch points and handles from Rs 15-20 billion cash a day.
While the discussions are still underway, industry executives told Business Standard, that the RBI has expressed their desire for the industry players to expedite the process to improve the cash cycle.
About 10 CLCs have come together to form a self-regulatory organisation (SRO) earlier this month, the Currency Cycle Association of India (CCA), to begin the implementation process.
“One of the main jobs of the CCA is to audit the quality of work and employees and the infrastructure, and monitor, measure and ensure that there is compliance of standards set by the Ministry of Home Affairs (MHA) and the RBI,” Raghavan said, who is also the vice-president of CCA. President of CCA, U S Paliwal, the former executive director of the RBI, could not be reached for comments.
The move towards a retail cash cycle requires coordination between the MHA and the RBI. While the RBI does not have supervisory and regulatory powers over CLCs as a matter of law, the MHA is responsible for setting standards for private security agencies that are contracted either by the banks or CLCs for moving cash from one place to another.
In April this year, the RBI came out with new guidelines concerning cash management practices for all types of banks, including regional and cooperative banks, to implement by the end of March 2019.
Some of these guidelines include no movement of cash without armed guards, vans should be GPS-enabled and have tubeless tyres, wireless mobile communication and hooters, discouraging night movement of vehicles and adequately trained staff associated with cash handling.
When asked about the governance structure of the SRO, Raghavan said they may want to include banks, vehicle providers and even the insurers as part of the CCA to make it as broad-based as possible.
“We are still trying to find our feet on this aspect and ensure that the SRO as a body is accountable and neutral, yet commercially viable. So, the CCA will need to have a credible governing body, so that there is no potential for one of the companies to influence decisions or game the outcome. We are resisting the temptation of allowing companies with larger market share to have a bigger say in the CCA. That is the best way to ensure there is an effective and independent approach,” he said.
Ultimately, a retail cash cycle will ensure that the turnaround time for one note to travel throughout the “chain” reduces from the current standard of seven days to three-four days.
Further, existing currency chests will be used more as an inventory for surplus cash, while the rest of cycle will attempt to become more self-sufficient, say experts.
Over the next few months, the CCA will work on ensuring that both the RBI and MHA’s guidelines are smoothly implemented in a cordoned fashion.
By December the CCA will complete the process of background verification, accreditation of all employees and in parallel they hope to create an effective mechanism for audit and enforcement.
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