Cash crunch woes: Deposits reduce, ATMs cut-to-size, money movement totters

Many PSBs are in the process of rationalisation of ATMs

Shreeya, a housewife living in Kottayam, got an email from Corporation Bank earlier this week that all automated teller machines (ATMs) were down and debit card transactions were getting declined due to server issues. “Customers can come to the branch with cheque and withdraw cash for the time being,” it said. Soon after, it emerged that this was not an isolated case and that cities and towns cutting across  states faced cash problem. 

While the jury is out on the reasons behind the cash crisis, three developments could help us understand the situation, analysts pointed out. 

First, the growth in aggregate bank deposits in the December quarter over the corresponding period in the previous year is at a decade low. Second, the number of major public sector bank ATMs is dropping since the March 2017 quarter. Finally, the movement of money in various denominations, as anecdotal evidence suggests, has been hampered. 
 

Growth in aggregate bank deposits has been on a steady decline in fact. From 20 per cent in December 2008 quarter to 15.4 per cent in December 2013 quarter to just 3.5 to 5.4 per cent in the quarter ended December 2017. 

Looking at data on broad money, cash in circulation is already above pre-demonetisation levels. The recent EcoWrap report by the SBI also pointed out that with regard to the growth in nominal GDP, the cash required in the system should have been even more than what it is today. 

Yet, three biggest public sector banks (other than SBI) have reduced their number of operational ATMs in the country. 

Many public sector banks are in the process of rationalisation of ATMs. While the numbers increased slightly from 143,795 as of June 2016 to 148,398 in March 2017, courtesy demonetisation, the count  dipped to 146,301 in Q3 2017-18.  

The cash crunch was felt more in some of the southern states. “As many as 380 of the 1,273 ATMs installed by Andhra Bank in Andhra Pradesh ran dry at the beginning of the financial year. Overall, 1,015 of the 6,600-odd ATMs in the state are cash-deprived as of Wednesday,” K S D Siva Vara Prasad, convener of the AP state level bankers’ committee, told Business Standard. He said the cash shortage had been around in Andhra and Telangana since November 2017.  

The RBI office at Hyderabad — which services banks in both AP and Telangana — received Rs 1.33 trillion from the central bank from November 2016 to February 2018. This was the highest among all the RBI offices in the country, Finance Minister Arun Jaitley said in a written reply in Parliament recently. 

“Banks in the South always need more cash than those in northern states, since the number of small loans, say for example gold, which are realised in cash are in strong demand there, while there is a tendency to bypass the banking system for such loans in the north and the west,” a banker from Maharashtra said. 

Sources said a lot of cash had been diverted to the real state sector in AP and Telangana, and has thus bypassed the banking system. 

In many parts of the rural Tamil Nadu, while there are rising instances of ATMs running dry, some of the working machines are disbursing only Rs 500 and Rs 2,000 notes, according to the Confederation of ATM Industry (CATMi), the industry body for ATMs. But the phenomenon is not restricted to TN alone. 

According to V Balasubramanian, spokesperson, CATMi, rural ATMs recorded around 116-117 transactions a day before demonetisation, which increased to around 120 transactions a day in March. “Now, this rate has dropped 50 to 60 per cent to about 30 to 40 transactions a day,” he said.