Cash crunch hits India again

It’s been close to two years since Prime Minister Narendra Modi had announced the demonetisation of Rs 500 and Rs 1,000 notes. Since then, the Union government has aggressively pushed several policies to make India a cashless nation. It has also rolled out and backed several necessities to ease the impact of currency shortage on the common man.

Many ATMs across the country are still non-functional. This suggests that this a result of poor planning, an observation that the government has vigorously denied since the beginning. Major metro cities across India are still struggling for cash; the plight of people living in smaller towns and villages, which have relatively fewer numbers of ATMs and bank branches, is expected to be much higher. And as people continued to rush for cash, the government has announced its ambitious 11-point agenda to incentivise digital transactions and thereby accelerate India’s transition to a cashless nation.

The government is targeting for at least 70 per cent of daily sales to be through the digital mode. Looking at chaos and social media attacks, Jaitley announced on Twitter that there is more than the adequate currency in circulation and the same is available with banks. He said that the shortage is ‘temporary’ and that it has been caused due to ‘sudden and unusual increase’ (in demand) in some parts of the country. But the general public is accusing the government of carrying all the cash to Karnataka to win assembly elections thereby causing inconvenience to banks.

While the push towards cashless economy could bring few benefits, the abrupt shortage of currency would upset several businesses, especially in the informal sector, and thereby the economy in the short-term. Between June and August last year, the total number of ATMs in the country decreased by 358. By itself, it’s a minuscule dip of 0.16 per cent. As expected, demonetisation is showing results in the long term.

The decrease is marginal, as only 366 ATMs, which is only 0.17 per cent of total number of ATMs, have closed down. But it holds the significance because it is the first time in last five years that number of ATMs have dipped instead of rising, and it happened after demonetisation where government devalued Rs 500 and Rs 1000 currency notes and issued new Rs 1000 and Rs 2000 currency notes in place of that close to two years back.

Rising operational cost and number of users switching to the digital transaction and internet banking have been responsible for the shutting down of ATMs. Banks have also run into financial issues with logistics firms with regard to the cost incurred in the recalibration of ATMs for new currency notes and retrieval of scrapped currency notes from ATMs. At the same time, the government, mainly to curb black money in the economy, started pushing for the digital transaction with Prime Minister Narendra Modi at the helm of the initiative post-demonetisation.

On the other hand, thousands of citizens’ money is stolen every hour from their account through fraudulent online digital transactions. The cash was not available in most of the ATMs nearly one year after demonetisation of notes. The trends show that more ATMs will be closed by the end of June-August to encourage digital transactions by the people of the country. No doubt digital transactions increased to some extent after demonetisation and also it will take time for the country to adopt digital payments in a full-fledged manner. Until then, the closing of ATMs in such short time is not correct. The necessity of cash arises to meet various domestic expenses where people cannot do digital transactions for small denominations like payments of Rs 10 – Rs 50. Therefore, the ATMs are necessary for the time being. But it is a very significant change because ATMs increased at a compounded rate of 16.4 per cent over the past four years. Even though growth slowed to 3.6 per cent last year, this is the first time the number of ATMs has declined.

Decreasing ATM use in cities after demonetisation, and the increase in operational costs have forced banks to take a hard look at how they deploy ATMs. SBI, which has the largest ATM network in the country, reduced its ATM count last year from 59,291 in June 2017 to 59,200 in August, Punjab National Bank from 10,502 to 10,083, and HDFC Bank from 12,230 to 12,225. Banks say rentals for a 7×5-sqft kiosk at airports and prime locations in Mumbai can go up to Rs 40,000 a month. Even in metros like Chennai and Bengaluru, ATM site rentals range from Rs 8,000 to Rs 15,000. Add to that, the salaries of security staff and ATM operators, maintenance charges and electricity bills, and the total can range from Rs 30,000 to Rs 1 lakh every month. Electricity is a major expense, as ATM kiosks have to be kept at 15-18 degrees centigrade throughout the day. Some other banks have not shut down any ATM but are going slow on expansion plans.

HDFC Bank, which started rationalising its ATM network in July last year, plans to shift some of its machines to busier locations. Eight out of every 10 ATMs are located in cities where digital payments have increased after demonetisation. More than 83 per cent of ATMs are in urban locations, servicing 33 per cent of the nation’s population that has access to net banking, wider point-of-sale network, e-wallets, mobile banking apps, etc., for transactions. The people who desperately need cash are in rural locations where only 15 per cent of more than 2 lakh ATMs serve nearly 67 per cent of our population. Urban India has already got onto the digital bandwagon, but rural India has not. Moreover, let it be a rural or an urban area, the government needs to understand that the people require proper options to go cashless as they still require cash for meeting their day to day expenses. Hope the BJP-led government won’t prove itself as anti-people.

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