Return of Empty ATMs: Remonetisation to Take Longer Than Expected

At the rate of Rs 6,800 crore a day, it will take at least 115 more days for cash levels to stabilise.

How true are government’s claims on remonetisation? (Photo: Lijumol Joseph/ The Quint)

It is not surprising that reports of Automated Teller Machines (ATMs) running dry even three months after the announcement to take 86.4 percent currency notes out of the system have begun to resurface in several parts of the country.

A leading national daily reported on Tuesday that at least a fourth of all ATMs across India continue to run dry.

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With currency in circulation only at 57 percent of what it was prior to the 8 November demonetisation announcement, there is bound to be a cash shortage in the system. What is worrying is the reduction in the pace of remonetisation in the last few weeks.

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According to the Reserve Bank of India, currency notes in circulation on 27 January 2017 stood at Rs 9.92 lakh crore. It means Rs 7.60 lakh crore worth of new notes have been issued since 8 November, as Rs. 2.32 lakh crore in lower denomination notes was already in the system.Therefore, remonetisation is taking place at the rate of Rs 9,620 crore a day.

That rate could be sustained for close to two months only because the RBI had a stock of nearly Rs 5 lakh crore of the new Rs 2,000 notes on 8 November. Now that the stock seems to be getting exhausted, the pace of remonetisation has slowed down considerably.

According to government estimates, the RBI had already injected new currency notes worth Rs. 6.78 lakh crore by 13 January. Which means that, in subsequent days, remonetisation is taking place at the rate of around Rs 6,800 crore per day, which is quite worrying.

If we go by the long-term average of remonetisation at the rate of Rs 9,620 crore a day, it will take at least 81 more days to reach the pre-note ban level of cash in the system.

However, if the process takes place at the rate of Rs. 6,800 crore a day, it will take at least 115 more days to attain the normal cash level in the system. If the second scenario plays out, we may not have full remonetisation before June.

As early as 9 December, we had reported that the process of remonetisation will take much longer than anticipated. We had based our calculation on the printing capacity of the four existing currency printing presses.

We had argued that the problem of severe cash crunch is unlikely to ease soon and it may take at least 175 more days to fully remonetise the banking system. That too, only if the complicated and time-consuming process of “printing press-to-pocket” flow is considerably overhauled.

Three months later, the situation has only partially improved. While 25 per cent of ATMs do not have cash to dispense, preponderance of the new Rs 2,000 notes in the system continues to come in the way of everyday transactions.

Bank officials say that while the situation has eased somewhat in cities, it is fairly common to find banks and ATMs in small towns and villages running out of cash fairly quickly.

The government was anticipating a pick-up in digital transaction to tide over the currency shortage.

But the latest RBI data show that while the value of digital transactions fell in excess of 10 percent in January compared to December, in volume terms, the drop was to the tune of 7 percent last month. Incidentally, the growth in transactions through digital wallets too has stagnated.

Digital transactions had surged in December partly because of acute shortage of cash. The surge was more pronounced partly because of the very low base.