The sudden ATM cash crunch in several States points to the government’s ham-handed approach to currency management and evokes suspicions of plans to weaken public sector banks. By PURNIMA S. TRIPATHI

THE ghost of demonetisation returned in mid-April to haunt cities across India as automated teller machines (ATMs) started displaying the “No Cash” sign again and some of them remained closed for days.

People were running from one ATM to another in search of cash and queueing up in front of those where cash was available. There was no apparent reason for the cash crunch, and the government remained tight-lipped for days on end. Only after there was a hue and cry in the media did Finance Minister Arun Jaitley put out a statement on Twitter, attributing the crunch to a “sudden and unusual increase” in demand for cash, adding that there was no shortage as such and that the situation would be under control within days.

His deputy, Minister of State Shiv Pratap Shukla, was more generous with information and attributed the crisis to a “temporary shortage” due to “disparity in distribution”. He said that there was enough cash, but somehow some States were receiving more cash and others less. “This disparity will be removed in three days,” he declared.

This, however, was no consolation for people in States such as Bihar, Jharkhand, Madhya Pradesh, Rajasthan, Uttar Pradesh, Andhra Pradesh, Telangana and Karnataka, as the cash scarcity continued beyond the stated three-day deadline. In many parts of India, including the national capital, ATMs continue to remain closed with the “No Cash” sign or their shutters downed, although the government claimed there was no shortage and that the situation was normal.

What actually prompted the cash crisis in the first place, that too after reports that more cash was now in circulation than before demonetisation was announced?

According to data brought out by the Reserve Bank of India (RBI), currency in circulation as on April 20, 2018, was Rs.18.9 lakh crore compared with Rs.17.98 lakh crore that was in circulation immediately before demonetisation. Hence, there was no plausible reason why there should have been any shortage at all. The RBI also disclosed that in three weeks of April this year, until April 20, the total withdrawals stood at Rs.59,520 crore and cumulative withdrawals during the January-March 2018 period amounted to Rs.1.4 lakh crore, 27 per cent higher than in the same period last year. So, why the shortage?

SBI study

SBI Ecowrap, a State Bank of India publication brought out by the bank’s Economic Research Department, said in its April 18, 2018, edition that it was inexplicable why there should be any shortage at all and hazarded a few possible reasons.

According to this publication, even though there is enough currency in circulation, currency velocity, which is the rate at which currency should be circulating in the market, was in sharp decline in the second half of 2017-18. It said it had been noticed in its surveys that Rs.2,000 notes were not being circulated enough, especially in States such as Bihar and Gujarat and in the southern States, resulting in a shortage of Rs.2,000 notes in the market.

The SBI research team also discovered that ATM withdrawals in the second half of 2017-18 were unusually high, at 12.2 per cent, compared with the first half of the year. They were also higher than the five-year average of 8.2 per cent during the 2012-16 period.

The researchers concluded that the larger withdrawals were because only smaller denomination notes were available in the ATMs, which meant that only smaller notes were in circulation now. The SBI Ecowrap research also discovered that because the currency velocity had gone down, cash in hand with the banks was now lower, at Rs.0.7 lakh crore as of March 2018 compared with Rs.0.9 lakh crore as of September 2017. This created a gap in currency availability with the banks.

The research team also discovered that based on gross domestic product (GDP) growth, cash with the public should have been Rs.19.4 lakh crore by March 2018, but in reality it was only Rs.17.5 lakh crore, leaving a gap of Rs.1.9 lakh crore. In effect, this meant a shortfall of Rs.70,000 crore.

The government’s ham-handed explanation attributed the cash crisis to various reasons, including marriage season, harvest, etc., but the question remains the same: Why a crisis now, when these events occur every year?

The question bothered so many people at the same time that a public campaign was initiated by the Centre for Financial Accountability (CFA), an independent platform, which drafted a public statement openly accusing the government of hatching a well-orchestrated game plan to destroy public sector banks. The statement was signed by 95 eminent individuals belonging to civil society, bank associations and civil rights organisations.

The statement is self-explanatory as to how this is a deliberate conspiracy and how the government is planning the demise of public sector banks. The signed statement was handed over to the Government of India (to the Finance Secretary) and the RBI on April 28 with several demands.

The statement urged the government to withdraw the Financial Resolution and Deposit Insurance (FRDI) Bill and dispel fears among the people about their deposits in banks, withdraw all forms of charges and penalty for basic banking transactions and the retrospective tax imposed on banks for providing free services, formulate and implement plans to recover debts owed by corporate houses, prepare a White Paper on demonetisation and publish the names of wilful defaulters, stop harassing the public by asking them to link their Aadhaar numbers with their bank accounts, implement the recommendations of the Parliament Standing Committee on NPAs (non-performing assets), and review Insolvency and Bankruptcy Board of India (IBBI) and National Company Law Tribunal (NCLT) procedures, which are leading to huge haircuts for banks.

According to the statement, the government is in a mad rush to emulate Western nations in a bid to become cashless and is deliberately creating a situation that is resulting in the shutting down of ATMs and corroding the faith of millions in public sector banks because cash is not available when they need it.

“Many Western countries have majorly cashless retail transactions, making ATMs defunct, and hence shutting ATMs has become common. In India, even though cash transactions are the predominant mode of transaction, banks are shutting ATMs. Since the beginning of 2018, banks have shut down five ATMs per day on an average across the country,” the statement said.

It added: “Between March 2017 and February 2018, 1,695 ATMs have been shut down. Six of the States that are now facing severe cash crunch also witnessed a rapid reduction in the number of ATMs. The worst affected are Andhra Pradesh and Bihar, both of which saw a 3 per cent decline in ATMs.”

The statement further said: “One of the primary reasons stated by the banks for shutting down ATMs is that they are not able to meet the operational costs. A threat of the run on banks is looming large when people cannot access cash, either through ATMs or banks. The extension of public sector banks has been limited, and extension counters, particularly in far-flung rural and Class II and III towns, have been weakened.”

Flaying the government’s lackadaisical attitude to cash management, the statement said: “Many of the ATMs that are still available to the public are yet to be recalibrated. It was said that it would take only 90 days to recalibrate over 2 lakh ATMs spread across the country. Eighteen months after the introduction of new notes, several ATMs are yet to be recalibrated to hold the new 200-rupee note.”

The statement also said the government/RBI sought to increase charges on even basic banking transactions and levy taxes with retrospective effect on services that were free earlier.

Noting that the new RBI guidelines for ATMs were “not helping the situation”, the statement said: “The Confederation of ATM Industry has demanded that to recover their implementation cost of calibration, the customers should be charged Rs.3-5 more per transaction.”

The current charges, beyond the five free transactions, are Rs.15 per cash transaction and Rs.5 per non-cash transaction.

The CFA statement said: “To add fuel to the fire, the tax department has asked the top banks of the country to pay tax for charges recovered by the banks for not maintaining a minimum balance. This tax directed by the Directorate General of Goods and Services Tax (DGGST) is being levied in retrospect and covers periods even before the introduction of GST. Banks that are already suffering massive losses and facing capital crunch will only pass on the burden to the customers.”

“Moreover, a recent tax notice has asked banks to pay tax, penalties, and interest on the free services offered to customers. This retrospective demand will charge 12 per cent service tax claimed retrospective from 2012, 18 per cent interest on the amount, and 100 per cent penalty. This amount would run to over Rs.40,000 crore, which the banks would pass on to the customers,” it said.

The statement highlighted the fact that banks in India earned 6-9 per cent on current and savings account deposits compared with 1.5-2 per cent around the world, and said that this should be a reason to offer basic banking services free of cost.

Private sector banks earn profits from these charges while public sectors banks use them to cut their losses from NPAs.

Calling it “a multipronged attack on the people, the public sector banks and the economy at large”, the statement said: “This cannot be brushed aside as an outcome of just mismanagement or wrong policies of the government, regulators, and bank management. It appears to be a part of a well-orchestrated and deliberate effort to cause mistrust in public sector banks, dismantle their networks, and pave the way for privatising the public banks.”

C.H. Venkatachalam, general secretary of the All India Bank Employees Association, who is a signatory to the statement, said the inexplicable cash crisis was an indication of something sinister going on behind the scenes and that people should be made aware of the government’s devious designs. He said that various online initiatives were on the cards to make people aware of how the government was systematically destroying people’s faith in public sector banks so that they could be sold off.

“Look at the ease with which the Modis and Mallyas are pocketing people’s money and smoothly running away while common people are made to suffer standing in lines to take their own money out of their accounts. And to top it all is the scare about the FRDI Bill, which people believe would make them lose their hard-earned money if a bank goes bust,” he said.

Such fears were only compounded when ATMs suddenly started displaying no-cash signs, he added.

According to him, the cash crisis was bound to happen because the government stopped printing 2,000-rupee notes in September last year and 500-rupee notes in November. The printing of 200-, 100- and 20-rupee notes too fell by 44 per cent last year. This was mentioned by Ashok Upadhyaya, an economic affairs columnist, who wrote in his column that an RTI (Right to Information) query revealed the government had stopped giving orders for printing 2,000-rupee notes last year.

According to him, the printing of 100- and 20-rupee notes was stopped owing to a proposed change in design, while the target for 500-rupee notes had been achieved.

Venkatachalam said that by the time the government realised there was a shortage it was too late as it had not renewed the contract for purchasing the ink used in printing notes. According to him, the ATM crisis is completely man-made as the government and public sector banks have outsourced the ATMs to private parties.

His claim lends credibility to Shiv Pratap Shukla’s statement that although there was no shortage of currency, there might have been disparity. It now emerges that there indeed was disparity because private parties, not banks, are managing the ATMs. Even the distribution of currency is outsourced to private parties. It is no surprise that ATMs are getting closed because of non-maintenance and are running dry in several areas because there is no one to monitor how much cash is sent to them.

“The non-serious manner in which the government is dealing with cash is indeed a very serious matter. It points either to a complete lack of understanding or a sinister game plan in order to destroy the credibility of public sector banks,” said Thomas Franco of the All India Banks Officers’ Federation, who is also a signatory to the public statement.

The campaign, which began with the statement, will now be taken to other forums and may result in a nationwide bank strike in July, Venkatachalam said.

The story, published on Frontline, can be accessed here.

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