Cash crunch: SBI Research pegs shortfall at Rs 70,000 crore

Mumbai: Even as the government and Reserve Bank have asserted that there is no currency shortage, SBI Research on April 18 pegged the cash shortfall in the system at a whopping Rs 70,000 crore, which is a third of the monthly withdrawals at ATMs.
In a note that comes a day after reports of currency shortages made national headlines, it depended on nominal economic growth, currency with the public and the rise in digital transactions to arrive at the shortfall estimate.
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, stressing that the gap of Rs 1.9 trillion is not the shortfall.
The proportion of digital transactions stands at a low Rs 1.2 trillion only, much 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The note estimates that Rs 15,291 billion were withdrawn from ATMs through debit cards in the second half of FY18, which is a good 12.2 per cent growth over the previous six months.
Reacting to reports of the currency shortage, it said the currency in circulation has breached the pre-note ban levels of Rs 17.84 trillion and added that such reports are “intriguing and defy logic”.
The report 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,” the report added.
It can be noted that in a statement, the RBI had yesterday 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.
The report also dismisses notions of the rising demand being due to proposals in the Financial Resolution and Deposit Insurance 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 rumors that money in banks is not safe due to a certain provision in the proposed Financial Resolution and Deposit Insurance Bill 2017, finance ministry officials had said yesterday.
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.
The government tabled the Bill last August in the Lok Sabha, which was referred to a Joint Committee of Parliament.
It was supposed to come up in the Winter Session that was a complete washout.

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