April 17, 2018 / 11:42 AM / a year ago

India calms cash crunch worries, will ensure adequate currency supply

MUMBAI, April 17 (Reuters) - India’s government and the central bank will ensure there is an adequate amount of currency notes, following reports that banks’ automated teller machines had run out of cash in different parts of the country, the government said on Tuesday.

Cash withdrawals in India go up during crop harvest season which is usually during March to April, and then during festival season in October, but there has been an unusual rise in currency demand in the last three months.

That is a source of worry for India’s policymakers as a sustained heavy currency withdrawal suggests a return of cash hoarding by individuals, diluting the purpose of a massive note ban exercise by Prime Minister Narendra Modi in late 2016.

“The total stock of currency has come down but still we have notes worth more than two trillion rupees ($30.46 billion) in stock which is more than sufficient,” said the government’s economic affairs secretary Subhash Chandra Garg.

Currency withdrawal by individuals during January-March 2018 was at 1.4 trillion rupees, sharply higher than 1.1 trillion rupees in the same quarter of 2016, according to Reserve Bank of India data. The March 2017 quarter data is not comparable as the RBI was in the process of re-injecting currency notes after the so-called demonetisation in November 2016.

While it is difficult to trace any specific reason for such massive cash withdrawals this year, analysts say that concerns over the health of India’s banking system has also triggered savers to withdraw cash.

India’s banking system has been fraught with challenges including a surge in bad loans and a recent revelation of a $2-billion fraud at the country’s second-largest state lender Punjab National Bank.

Investors have also been wary of issues surrounding the chief executives of two big private sector lenders - ICICI Bank and Axis Bank.

Cash withdrawals have gone up sharply in the last three months especially in states of Andhra Pradesh, Telenghana, Karnataka, Madhya Pradesh and Bihar, the government said in a release adding that it would be “supplying adequate currency notes to meet even higher levels of demand if such demand were to continue in the coming days/months”.

The government also dismissed concerns over a lack of adequate supply of the high-value 2000 rupee note while acknowledging early signs of hoarding.

“Of late we have noted somewhat lesser inflow of the 2000 rupee notes coming back in the circulation. You can assume this is one note most suitable for people to keep themselves,” Garg said adding that there is no need to print more of these notes.

$1 = 65.6575 Indian rupees Additional reporting by Manoj Kumar Editing by Jacqueline Wong

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