Netizen 24 IND: ATMs across the country go dry, FM Jaitley steps in to allay fears of new crisis

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ATMs across the country go dry, FM Jaitley steps in to allay fears of new crisis

ATMs across the country go dry, FM Jaitley steps in to allay fears of new crisisET Online|Updated: Apr 17, 2018, 12.43 PM IST

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The government is checking with banks and the Reserve Bank of India to ensure adequate supply of currency, ET Now reported.
For the last few weeks, several areas in Telangana and Andhra Pradesh have reported shortage of currency. Now similar reports are coming from eastern Maharashtra, Bihar and Gujarat too. The government is checking with banks and the Reserve Bank of India to ensure adequate supply of currency, ET Now reported. Sources i n the finance ministry said the cash crunch was not alarming and there was no need to panic.
Finance Minister Arun Jaitley said that there was more than adequate currency in circulation and also available with the banks. He blamed ‘sudden and unusual increase’ in cash withdrawal for the situation. We have cash currency of Rs 1,25,000 crore right now. There is one problem that some states have less currency and others have more. A panel has been formed and the matter will be fixed in three days," said SP Shukla, Mos Finance.
We explain how the currency problem originated in the southern states and the reasons why it could be spreading to other states.
The Bill that fuelled rumours
A certain provision in the proposed Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 sparked a rumour that the money would not be safe in banks if the Bill became a law. Even though the government clarified that there could be no such consequence, the rumour drove people to ATMs and bank branches to withdraw money. Several bank loan scams coming to light led to more rumours that certain banks could fail. These rumours created a situation similar to a bank run.
What is a bank run?
A bank run is a self-fulfilling prophecy which means people expecting something positive or negative to happen behave in a way that makes the expectation come true even though it was not supposed to. What happened in parts of Telangana and Andhra Pradesh was similar to a bank run. People made a run on banks, withdrawing money from ATMs and banks fearing the banks could collapse due to scams that came to light recently and the new law. Even though there is no risk to banks due to either of these factors, the rush to withdraw money created a shortage of currency. But if more and more people rush to take money out of banks and ATMs, it could lead to a bank run. A bank can collapse within days due to a countrywide bank run. < br/>What happened in Telangana and Andhra Pradesh
Recently, downed shutters and ‘No cash’ and ‘Out of service’ signs plastered across several ATMs in Hyderabad, Visakhapatnam, Vijayawada and rural Andhra Pradesh and Telangana threw life out of gear for many in the two Telugu states, according to TOI reports. Banks in Telangana and AP witnessed long queues for closure of fixed deposits as well as withdrawal from saving bank accounts. This led to banks imposing unauthorised rationing on cash disbursals, ranging from Rs 20,000 to Rs 40,000 per day per person in their home branches.
Many bank customers said they had lost faith in the banking system in the wake of the proposed FRDI Bill and frauds like the PNB scam. Bankers urged members of the public against accelerated withdrawals from their savings bank accounts and deposits. State Bank of India's Hyderabad circle chief general manager Swaminathan J advised customers against accelerated withdraw als and also cautioned them against investing in high-risk instruments like chit funds or stashing the cash in bank lockers or at home due to which their money would be sitting idle. "There is no need to panic. The Financial Resolution and Deposit Insurance (FRDI) Bill is still a Bill and the government has clarified on the bail-in clause and said that depositors will be protected. There is no history of depositors facing a situation where they have lost their deposits in public sector banks. All their deposits are safe and secure," Swaminathan said.
The problem of Rs 2,000 note
The reason for reports of currency shortage in other states could be different. Since the amount of currency put out by the Reserve Bank of India (RBI) and government printing presses is adequate for normal transactions, bankers believe there is hoarding of the Rs 2,000 notes. According to RBI data, currency in circulation as on April 6 was Rs 18.17 lakh crore, which is close to the number at the time of demonetisation. While the growth in currency has been almost flat (compared to the day before demonetisation), the need for currency has shrunk considerably because of the high level of digitisation.
Deposit growth dips
The demand for currency is also reflected in the slowdown in deposit growth. During the year ended March 2018, bank deposits grew by a measly 6.7% compared to 15.3% in 2016-17. During the same period, bank credit grew 10.3% compared to 8.2% in the comparable period in the previous year.
Read more onCash CrunchBiharAndhra PradeshRBImaharashtra atmATMTelangana

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