Banking sector this week: Cash crunch at ATMs grips 8 Indian states as banks struggle for recovery

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In just 18 months, demonetisation-like nightmare once again haunted Indians in almost eight states as it witnessed major cash crunch at a large number of ATMs.

ATMs, or Automated Teller Machines, went dry in states like Karnataka, Andhra Pradesh, Telangana, Madhya Pradesh, Uttar Pradesh, northern parts of Bihar, some regions of Maharashtra and Delhi after they witnessed an unusual spurt in demand for cash over the past few months.

The present cash shortage reignites the troubles faced by the banking sector especially amid growing mistrust in banks as it is dealing with faltered processes, systems and internal controls leading to various scams at public sector banks including the biggest fraud worth over Rs 13,000 crore unearthed at Punjab National Bank in February.

Additionally, many large banks have reported divergence in classification of non-performing assets (NPAs) while they are also attempting to clean up the heavy pile of stressed loans on their balance sheets and also corporate governance issues raked up at banks such as ICICI bank and Axis Bank.

To worsen things for the sector, IndusInd Bank, one of the most prudent banks, reported divergence in gross NPAs at Rs 1,350 crore for FY17, signaling similar trouble for other banks in the fourth quarter.

While various investigations are ongoing and NPA resolution plans under the Insolvency and Bankruptcy Code has tasted its first success with Electrosteel Steels from the dirty dozen, the cash crunch situation has even irked bankers and employee unions.

The sudden spike in currency demand is attributed to various reasons including upcoming state elections in Karnataka, cash payments in state government schemes in Telangana and Andhra Pradesh, misunderstanding of the Financial Resolution and Deposit Insurance Bill’s ‘bail-in’ clause, which created fear among depositors that they would have to bear a portion of any loss if incurred by the bank.

Although Reserve Bank of India (RBI) has clarified that there is sufficient cash in RBI vaults and currency chests, it has ramped up printing of notes in all the four presses, it said.

Cash withdrawals from ATMs hit a high of Rs 2.47 lakh crore in February 2018 compared to Rs 2 lakh crore in April 2015, RBI data show.

Monthly ATM cash withdrawals increased from Rs 2.17 lakh crore in April 2017 and hit a high of Rs 2.64 lakh crore in December 2017. Even as the withdrawals declined to Rs 2.47 lakh crore in February 2018 and the excess cash shortage began to hit the common man.

Meanwhile, State Bank of India, country’s largest bank, also said there is enough cash available with banks and the shortage will be resolved by April 20, bank customers can also withdraw up to Rs 2,000 at its 4.78 lakh point of sale (POS) machines available at various merchant centres.

An SBI Research report pegged the cash shortfall , which is one-third of the monthly withdrawals at ATMs.

Moreover, the cash crunch also proved that the push for digitisation in banking and payments is not going as planned, since the demand for cash is clearly rising.

The country suffered its previous cash crisis in November 2016, when Prime Minister Narendra Modi decided to suddenly invalidate Rs 1000 and Rs 500 denomination banknotes, which constituted 86 percent of India’s total currency.moneycontrol