No dearth of cash, says RBI governor but urges people to go digital

Reserve Bank of India governor Urjit Patel has assured of enough availability of cash at banks and that the situation arising out of the demonetisation is being monitored on a daily basis even as he urged people to start using cash substitutes like debit cards and digital wallets to help the economy move towards a cashless society.

The governor said that RBI and the government are getting printing presses to work at capacity to make the new notes available to meet demand. Currency is available and banks are working on a mission mode to take them to branches and ATMs, he said in an interview with news agency PTI.

Liquidity in the banking system has increased and the intent is to normalise things as soon as possible, Patel said, adding that cashless transactions will be cheaper and easier and in the long term, will help India ''leapfrog into a less cash-use economy at par with more developed nations.'' 

He said RBI is taking all necessary steps to 'ease the genuine pain of citizens' who are honest and who have been hurt.

While the new Rs500 and Rs2,000 notes have been designed to make them hard to counterfeit, Patel, however, said it is more  desirable that people start using cash substitutes like debit cards as it will make transactions cheaper and easier.
 
"We are also urging banks to make a big push with PoS (Point of Sale) machines with traders so that debit card use becomes more prevalent," he said.

At the same time, he said, RBI is interacting with the banks on a daily basis so that liquidity in the system gradually eases. He said the situation is almost normal as the queues in bank branches and ATMs are getting shorter and the markets are not feeling the cash crunch.

Patel said up to 50,000 people are engaged in recalibrating the ATMs as the availability of cash increases.

RBI, he said, will soon review its decision asking banks to deposit their extra cash with it once the government has issued an adequate quantum of market stabilisation scheme bonds to soak up liquidity.

On Saturday, RBI unexpectedly ordered banks to boost cash deposits with the RBI, in a bid to absorb excess liquidity generated by a government ban on larger notes. The move is estimated to drain over Rs3,24,000 crore from the banking system.

With the denomination bank notes of the old series Rs500 and Rs1,000 notes (referred to as Specified Bank Notes or SBNs) beginning 9 November 2016, there has been a surge in deposits relative to the expansion in bank credit, leading to large excess liquidity in the system.

The magnitude of surplus liquidity available with the banking system is expected to increase further in the fortnights ahead. In view of this, it has been decided to absorb a part of this surplus liquidity by applying an incremental cash reserve ratio (CRR) as a purely temporary measure, RBI stated.

As of now, the currency reserve ratio (CRR) of banks remains unchanged at 4 per cent of outstanding net demand and time liabilities (NDTL);

RBI said, with the increase in NDTL between 16 September 2016 and 11 November 2016, scheduled banks will maintain an incremental CRR of 100 per cent, effective the fortnight beginning 26 November 2016. This is intended to absorb a part of the surplus liquidity arising from the return of SBNs to the banking system, while leaving adequate liquidity with banks to meet the credit needs of the productive sectors of the economy. As the incremental CRR is intended to be a temporary measure within the Reserve Bank's liquidity management framework to drain excess liquidity in the system, it shall be reviewed on 9 December 2016 or even earlier.

The Reserve Bank has separately revived the Guarantee Scheme to enable deposit of SBN balances at the RBI or at currency chests and get immediate value. This measure should also facilitate banks' compliance with the incremental CRR, RBI stated.