Banks run out of cash in Telugu states, limit withdrawals

Deccan Chronicle.  | SNCN Acharyulu and L Venkat Ram Reddy

Business, In Other News

An official of a leading public sector bank said that the cash crunch began in November 2017 and has worsened this month.

There is a fear that the Centre intends to use deposits to rescue failing banks.

Hyderabad: Banks in the two Telugu states have started imposing undeclared restrictions on cash withdrawals, bringing back memories of the travails of demonetisation in November 2016. 

The restrictions are because cash deposits have fallen by more than half in three months. The panic created by messages posted on social media about the FDRI Bill is said to be preventing people from depositing their money. Customers are also cancelling their fixed deposits. A provision in the Bill suggests that depositors' money can be used to save failed banks.  

Normally, 60 per cent of cash disbursals made by banks return in the form of deposits. This has now come down to 20 per cent.

Moreover, the RBI has drastically reduced cash supplies and has asked banks to manage with the available deposits.

Huge withdrawals before Sankranti were stated to be adding to the shortage.

As ATMs go dry, withdrawals from banks have exceeded the deposits, forcing banks to impose unofficial restrictions.

People in semi urban and rural areas are not allowed to withdraw above Rs 5,000 per day. In urban areas the limit ranges from Rs 10,000 to Rs 30,000.

An official of a leading public sector bank said that the cash crunch began in November 2017 and has worsened this month.

“For three weeks, there have been virtually no deposits and customers are making a beeline to withdraw cash from their accounts. With the RBI too cutting down currency supplies, the gap between deposits and withdrawals has widened so much that we are struggling to pay even Rs 10,000 per day for customers in the city and ` 5,000 in semi urban and rural areas,” he said.

Each bank branch used to have cash reserves of Rs 60 lakh per day on average of which they would pay out nearly Rs 30 lakh, Rs 10 lakh was held as ‘reserve’ and the remaining Rs 20 lakh used to be loaded in ATMs.

“Now, we do not have cash reserves of even Rs 20 lakh per day. Whatever cash reserves are available with us are not enough to meet withdrawals. So we have stopped loading cash in ATMs completely,” he said.

The shortage is expected to last for another 10 days.  TS government officials held a meeting with bank officials on Thursday and discussed the cash crunch.

TS State Level Bankers Committee (SLBC) convener and SBI general manager S. Manikandan said, “Whatever cash goes out never comes back to the banks; really, they (banks) are finding it very difficult.” This situation may continue for about one week or 10 days, he said.