Thursday, December 1, 2016

Handling Payday Rush Post Demonetisation

Banks, private sector, governments and public sector enterprises are bracing up to face the challenges that will unfold during the first payday season since the sudden notes ban announcement. Banks across India are getting ready, though reluctantly, to face a massive rush for cash.

Though salaries get credited to the accounts of employees, they need to withdraw cash either from banks or ATMs. This will double or triple the queues that are still found before ATMs and bank branches. Additionally, a vast number of ATMs are still not recalibrated and hence unusable. Added to that, even before the expected payday rush, ATMs used to be emptied out no sooner than they were replenished with cash.

That means, longer queues, and a huge loss of working days on a national level. Besides, the restrictions on withdrawal of cash will be another impediment. This will put additional pressure on banks to fill up their ATMs and to permit higher withdrawals to reduce the queues.

The demonetisation of high value currency notes announced on November 8 took 86% of cash out of circulation all on a sudden. The result is a huge cash crunch affecting almost all people, especially the lower middle class, farmers and the poor.

So, whoever could manage to exchange old notes or withdraw from their accounts are hesitating to spend except for basic and urgent necessities. This resulted in an artificial cash shortage because money as usual did not go into circulation. That means, newly printed notes would not get back to the system as fast as expected.

Well before the payday season, the government and banks have been preparing to deal with the situation, but not, expectedly, enough. As per reports, banks are expected to see disbursal up to 30% more than usual due to withdrawals from accounts of salaries and pensions.

Ever since demonetisation was announced, the Reserve Bank of India (RBI) was planning to meet the challenges of the first payday rush. Accordingly, the RBI has promised ‘there will be improvement in cash supply’ to meet the rush, and there will be more new Rs. 500 notes.

However, several bank branches did not get the new Rs. 500 notes at all. Only adequate supply Rs 500 notes will ease the banking system. It is because this particular denomination has been the standard one for easy transactions. People are reluctant to receive Rs 2000 notes as they are difficult to use for daily transactions.

After cash crunch hit people, Rs 100 notes took the role of Rs 500 notes too. Banks too were dispensing this smaller denomination, making its circulation increase by 150% since demonetisation. And, people have started hoarding Rs 100 notes also, resulting in more crisis.

Though the weekly withdrawal maximum limit has been fixed at Rs 24,000, several banks have imposed their own limits, saying they cannot allow more than Rs 10,000 for shortage of notes. Even withdrawals from Jan Dhan accounts have been limited to Rs 10,000 a month, at least for now.

What can be understood from various reports is that, though government security presses are trying hard, they are unable to print enough currency to replace the banned notes to meet the demand. The problem is not with disbursing banks, but with the supply of notes. So, till the government can supply sufficient number of notes of the required denominations, the problems are likely to continue. And the withdrawal restrictions will also continue.

Let us see how the payday rush worsens or eases the current crisis.

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