Why banks are unable to deal with the cash crunch

Banks have reported that banknotes worth Rs 592,613 crore have been issued to the public, reports Abhijit Lele.
Illustration: Dominic Xavier/Rediff.com

The Reserve Bank of India's announcement of November 29 on an easing of the limit on withdrawal of money deposited in bank accounts hasn't given much relief, due to the paucity of Rs 500 notes and the difficulty in using Rs 2,000 notes.

The RBI had then said that if deposits had been made in the demonetised notes, depositors could withdraw that much amount over and above the Rs 24,000 weekly limit.

The move was aimed at those hesitant to deposit legal tender after the withdrawal of high value currency notes came into effect from November 9.

Banks should, preferably, issue higher denomination bank notes (of Rs 2,000 and Rs 500) for such withdrawals, it had added.

State Bank of India executives said the change had been difficult to implement.

With currency notes of all denominations in short supply, it is difficult to even give out cash within the weekly limit of Rs 24,000.

Feedback from customers indicates they face problems in making purchases with the Rs 2,000 note, said another public sector bank executive.

The RBI had said that on careful consideration it has allowed withdrawals of deposits made in current legal tender notes on or after November 29, 2016 beyond the current limits.

Banks should, preferably, issue higher denominations bank notes (of Rs 2,000 and Rs 500) for such withdrawals.

While easing the cap, the RBI had said certain depositors were hesitating to deposit their monies into bank accounts due to the limits on cash withdrawal from accounts. This was impeding active circulation of notes, the RBI said.

Between November 10 and December 19, says the RBI, banks have reported that banknotes worth Rs 592,613 crore have been issued to the public, either over the counter or through ATMs.

It has issued to banks and their branches a total of 22.6 billion pieces of notes of various denominations for distribution.

Of which, 20.4 billion pieces were of the smaller denominations of Rs 10, 20, 50 and 100s.

The count for the higher denominations of Rs 2,000 and Rs 500 was 2.2 billion.