In a report titled 'The (Non) genuity of cash crunch', authored by Dr. Soumya Kanti Ghosh, SBI's Group Chief Economic Adviser, the bank argued that currency in circulation (CIC) in the economy had surpassed its pre-demonetisation level of Rs 17.98 lakh crore to reach Rs 18.29 lakh crore by March this year, thereby downplaying the possibility of a currency deficit.
However, the bank noted that certain trends may have caused restricted availability of currency.
Income velocity (of currency with public), the SBI said, has been on a declining trend in FY18, particularly in the second half. This indicates the possibility of currency of higher denomination not getting adequately circulated in the economy.
"Though the State-wise/Region wise income velocity is hard to determine, yet our internal estimates suggest that in the states like Bihar, Gujarat and Southern States, the income velocity is far less than the national average. The other states have also started facing issues as there has been a 'domino effect' whereby any possible tendency to hoard cash may have spread to other states," Ghosh said in the report.
Additionally, the report highlighted a 12.2 percent increase in ATM withdrawals in the first half of FY18, as compared to the second half. This growth was much higher compared to FY16 or FY15 and even the five-year average of 8.2 percent.
"Cash withdrawals in H2 are always more than the H1 due to many reasons like festival and procurement season that fall in H2 but in FY18 such a large increase is still not self explanatory. So the moot question is why has there been such a dramatic change in demand for cash more than one year after re-monetisation? We believe, there has been a forced shift in currency composition with more of smaller denomination notes in circulation now, which is positive," Ghosh said in the report.
"For example, in FY17, when remonetisation was achieved, there was no Rs 200 denomination note. However, in FY18 the pace of circulating 200 denomination has increased, as has happened with notes of smaller denomination. This may have altered the demand for smaller denomination notes in a larger way to possibly substitute (more transaction) for the currency of larger denominations which are getting less. As ATMs have to be replenished more frequently, it can lead to the conjecture that cash is not available," it added.
Another reason cited by the SBI is of heightened economic activity in Q4 of FY18, implying that the demand for working capital cycle has changed for the better, resulting in more usage of cash for transactional purposes. This may have also prompted more withdrawals at the ATM to support the same level of currency demand, thereby leading to a temporary shortage.
People in various parts of the country, including Delhi, Karnataka, Andhra Pradesh, Rajasthan, Uttar Pradesh, Madhya Pradesh, Bihar, Telangana, and Maharashtra, complained that they were unable to withdraw cash from ATMs, as these had gone dry.
However, the central bank stated that printing of currency notes has been ramped up in all the four note presses as a precautionary measure.
Meanwhile, SBI Deputy Managing Director (Chief Operating Officer) Neeraj Vyas claimed the situation of cash availability has improved significantly in the last 24 hours. He also stated that the situation is being closely monitored.
"Availability of cash in SBI ATM has improved in the last 24 hours. Efforts are being made on a continuous basis to improve the cash vailability further in a few geographies. Overall issue of less cash should come to normalcy within soonest possible time. We are constantly monitoring the situation and making immense efforts to ensure the supply of currency in abundance at all our ATMs," he said. (ANI)