Cash crunch in several states; Is Mumbai next?

Experts say reports of cash crunch might scare public of return of demonetisation-like days. File Pic

Mumbai and other parts of Maharashtra could very well be next on the list of affected areas in terms of ATMs running dry, if the government doesn't do something soon to address the cash crunch certain states have been facing for the past few weeks.

Withdrawals rising
According to Navroze Dastur, director of NCR Corporation Pvt Ltd, an ATM manufacturer, the cash crunch is being caused because of a fluctuation in demand and supply. "This has been happening for quite sometime now; we have been seeing a steady increase in the number of ATM transactions and a rise in the average ticket size of withdrawals," he said.

Navroze Dastur, director of NCR Corporation Pvt Ltd

"There is a cyclical increase in cash demand because you're running an agrarian economy. These are times when farm hands need more cash; people need to make payments in cash, considering that our rural economy is still largely driven by it. The other important factor is that the total cash in circulation today is around Rs 18 lakh crore, which is equal to the pre-demonetisation level. In these 18 months, the economy has grown, but the supply of cash has not increased. When an economy grows, you need more currency in circulation."

Financial capital next?
When asked if ATMs in city were facing a cash crunch, Dastur said: "To my knowledge, there isn't any cash shortage at this time. But with the stories of ATMs running dry in other parts of the country, and the media hype surrounding it, I won't be surprised if you soon see this problem here. Once people start seeing the reports, they will probably go to ATMs and start withdrawing, thus making the situation a reality."

Regarding reports emerging from rural Maharashtra about certain areas facing cash shortage in ATMs, Dastur added that he could not confirm the same at this point.

Offline trumps online
Dastur also gave another possible reason for the prevailing cash crunch, "It could have been because the government was hopeful that transactions would move to the digital platform. But the digital movement hasn't been large enough to meet the current requirement, which is why people are moving back to cash. There has been a digital growth in transactions, but not so much that it can take care of the cash shortage. Most of the digital transactions happen only in metros."

Expert insight
How did experts not see this coming if it is cyclical in nature? "We were seeing the trend in a few pockets and thought it would be restricted only to those small areas. But now, it is happening on a wider scale. The government and RBI are currently looking into the matter and are going to ensure that there is adequate cash in circulation," said Dastur.

Also Read: ATMs out of cash: Rahul Gandhi says terror of demonetisation is back

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