MUMBAI | NEW DELHI: Happy Note Year? Will 2017 see cash supply return to normalcy or something close to it quickly? Experts’ answer: March may be the month when queues finally become a memory. And withdrawal limits? Don’t expect a dramatic lifting of the Rs 24,000 weekly and Rs 2,500 daily ceilings (now relaxed to Rs 4500 per card). Relaxations are likely to take some weeks.
On Friday, FM Arun Jaitley confirmed as much. Addressing mediapersons, he said the currency situation has stabilised to a great extent but did not indicate if the curbs on withdrawals will be eased. “RBI has sufficient stock to inject a lot more currency which they will continue. Yesterday, I had gone around Delhi and we’re getting reports from all over the country the crowds at the banks have eased significantly,” he said. Economists, cash logistics industry executives, government and banking officials ETspoke to identified two factors that will determine cash supply: 1) How fast will Rs 500 and Rs 100 notes be printed and released into the system; and, 2) Everyone needs to adjust to the fact that cash volume will be lower, may be by 20-25 per cent, from what it was pre-November 8.
Officials say by February-end around 75-80 per cent of the value of extinguished cash (Rs 15.44 lakh crore) may be replaced and that will be the new normal. That means from the third month of the New Year onwards, with luck, citizens may not have to queue up in front of automated teller machines and in banks for cash.
Cash in ATMs is critical, of course. Currently, ATMs are getting stocked with around 10 per cent of their pre-demonetisation value of cash. That has to keep going up sharply throughout January, cash logistics industry executives say.
Navroze Dastur, managing director, NCR Corporation, which installs and manages ATMs for banks, told ET: “Get cash not in the Rs 2,000 denomination, but in the Rs 500 and Rs 100 denominations into mass scale circulation fast.”
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Soumya Kanti Ghosh, chief economic adviser of SBI, told ET the next two months will see a lot of cash coming in. “Given that Rs 500 notes are now being printed and also given that RBI and the government are working overtime, we tried to deconstruct the most plausible date of when the cash crunch will get over. Our results indicate that by February-end, around 80 per cent of the currency could be back in the system under the best case scenario in terms of an optimal currency distribution (more small denomination notes). Clearly, it seems that within the next two months things would be pretty close to normal.”
A finance ministry official, speaking off record, told ET cash availability across all banks is expected to start normalising by Januaryend. “Our current focus is to provide cash in rural areas. We hold daily meetings with state-level bankers’ committees to take stock,” he said.
Banks have also been directed to ensure that all banking correspondents are active on field. As per the latest data available with the ministry, around 1.5 lakh banking correspondents are active and most have cash available with them.
GRADUAL EASING OF LIMITS
On withdrawal limits, an executive director of a public sector bank who did not want to be identified said sudden abolition of the ceilings will lead to a surge in withdrawals and will likely create a difficult situation again. “It’s best the limits are relaxed in a phased manner,” he said.
Finance Secretary Ashok Lavasa had earlier said withdrawal limits will be reviewed after December 30.
Expect continuous push to digitisation of transactions. Demand for point of sale (PoS) machines, for using debit or credit cards, has risen sharply — sales are up by 40 per cent in November and December compared with last year, banks said. Digital transactions are up more than 30 per cent from a year earlier.
“Demonetisation is a major change and will result in a significant increase in bank deposits and digital transactions,” Deutsche Bank said in a recent report. “We forecast a 10x jump in non-cash retail payments by 2025, with mobile becoming the dominant mode of executing transactions (an 11x leap to form ~20 per cent of all payments).”
Digitisation can drive down banks’ costs and increase their profits, experts said, because cash management is costly, and fewer cash transactions will lower costs. “We will continue to see a gradual shift towards newer payment platforms… that should help India move towards a ‘less-cash’ economy,” MB Mahesh of Kotak Institutional Equities told ET.
So, hopefully, no more queues for cash by beginning of March, and a lot more non-cash transactions all through 2017. It may be a Happy Note Year.