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Cash crunch grips nation again; 3 possible reasons why

Somya Lohia
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Cash crunch grips nation again; 3 possible reasons why

As the reports surfaced, Finance Minister Arun Jaitley acknowledged the issue by calling it a “temporary shortage caused by ‘sudden and unusual increase’ in some areas”.

Moneycontrol News

Nearly one and a half years after a cash crisis gripped the nation in the wake of Prime Minister Narendra Modi's sudden demonetisation announcement, parts of the country have again been haunted by a shortage of currency.

For the last few weeks, South Indian states including Telangana and Andhra Pradesh have reportedly seen ATMs go dry. They are now joined by Bihar, Uttar Pradesh, Chhattisgarh, Gujarat, Delhi and Madhya Pradesh, as people in these states are said to be returning home empty-handed from ATMs.

People in Varanasi say, 'We do not know what or where the problem is but the common man is facing difficulty as the ATM Kiosks are not dispensing cash. We have visited 5-6 ATMs since morning. We need to pay for the admission of children and purchase groceries & vegetables'. pic.twitter.com/8eSGXU0NtU

— ANI UP (@ANINewsUP) April 17, 2018

As the reports surfaced, Finance Minister Arun Jaitley acknowledged the issue by calling it a "temporary shortage caused by ‘sudden and unusual increase’ in some areas". In a tweet on Tuesday, the FM said the currency situation in the country has been “reviewed” and assured the availability of “adequate currency in circulation”.

Have reviewed the currency situation in the country. Over all there is more than adequate currency in circulation and also available with the Banks. The temporary shortage caused by ‘sudden and unusual increase’ in some areas is being tackled quickly.

— Arun Jaitley (@arunjaitley) April 17, 2018

So, what could be the reason for the “sudden and unusual” cash crunch in the states? Here are some points explained by The Economic Times that could be behind it:

FRDI Bill

There have been rumours that the passage of Financial Resolution and Deposit Insurance (FRDI) Bill will lead to heavy monetary losses for savers if a bank goes bankrupt. Though the government has constantly cleared the air on this, people may have queued up to withdraw cash.

Hoarding of Rs 2,000 note

As the government has assured the availability of adequate currency in circulation, bankers believe there is hoarding of the Rs 2,000 notes.

Slowdown in deposit growth

During the year ended March 2018, bank deposits grew by a measly 6.7 percent compared to 15.3 percent in 2016-17. During the same period, bank credit grew 10.3 percent compared to 8.2 percent in the comparable period in the previous year, according to the ET article. This may have led to a cash crunch.