Chennai: There was no major last minute rush of people to deposit the demonetised 500/1,000 rupee notes in their accounts but the cash crunch may continue, bankers said on Friday.
The central government had earlier announced December 30 would be the last day to deposit demonetised notes in banks. However, now people can deposit invalid currency with the Reserve Bank of India (RBI) until March 31, 2017.
The bankers said they may continue to manage the cash crunch at the present weekly withdrawal levels, but the situation may turn tough if the limits are greatly relaxed.
“We have not seen any last minute rush to deposit the demonetised 500/1,000 rupee notes today [Friday], the last day to deposit them with the banks,” C.V.R. Rajendran, Managing Director and CEO, Catholic Syrian Bank said.
“We have enough cash to issue our customers at the current weekly withdrawal ceiling limit of Rs24,000. Even if the limit is increased to Rs50,000 per week, we can manage,” he added.
Beyond that, however, Rajendran it would be tough to meet demand.
According to him, if RBI infuses additional cash of around Rs200,000 crore [Rs2 trillion] or Rs300,000 crore [Rs3 trillion], then the cash crunch would ease up.
Rajendran hoped things would settle down in the New Year.
Public sector bank officials told IANS that there was no major rush to deposit the invalid notes.
“However the liquidity situation has not improved to comfortable levels. We continue to ration cash with those who come to withdraw money,” a Canara Bank employee, who did not want to be named, told IANS.
“The cash crunch continues. Most of the ATMs are dry. If the government relaxes the withdrawal limit upwards from Rs24,000 per week, then the situation may turn tougher,” All India Bank Employees’ Association (AIBEA) General Secretary C. H. Venkatachalam told IANS.
Modi and the ruling Bharatiya Janata Party (BJP) will learn if his risky gamble has paid off when Uttar Pradesh (UP) holds the first of several 2017 state elections, likely in February.
“UP elections will be the first real test to see how people have judged the policy,” said political analyst Devdan Chaudhuri, predicting that demonetisation will backfire for Modi at the ballot box.
“I cannot think that this will help BJP because the pain of [the] cash crunch is decimating the rural and the unorganised sectors. The repressed anger will come out soon. And the policy ... will cost BJP dearly,” he said.
Modi, who came to power in 2014 pledging to tackle so-called “black” or undeclared money, was forced onto the defensive as frustration grew at the slow introduction of new notes.
There has been anger in rural areas where farmers have been unable to sell crops while small traders have reported a huge drop in earnings owing to a lack of paper currency in the system.
While many local businesses have heeded Modi’s call to move towards a digital economy, some industries have ground to a halt and laid off staff, highlighting just how dependent India currently is on cash.
As the almost two-month window draws to a close, serpentine queues outside banks have subsided but a single Rs2,000 note is still all that most ATMs are able dispense to customers.
Indians have until March 31 to deposit old notes directly with the RBI but Friday is the last opportunity they have to do so at their local branch. After the March deadline there will be a minimum Rs10,000 penalty for holding old notes, Press Trust of India reported.
Analysts say the cash squeeze will seriously dent India’s economic growth in the short term.
A pause in business owing to a lack of cash is expected to hit both companies and their lenders, analysts say.
“The economic growth has taken a hit, business activity has been adversely impacted, so where are the customers for loans?” said Sunil Kumar Sinha, principal economist at India Ratings & Research, a unit of Fitch. “And now even though the cost of funds for banks is going down, they may not find enough borrowers for those funds.”
Ratings agency Fitch revised down its gross domestic product forecast for the fourth quarter of 2016 to 6.9 per cent from 7.4 per cent.
Economists expect the economy to benefit in the long term due to an increase in tax revenues but only once there is a plentiful supply of those elusive new notes in circulation.
“There will be course correction in the second quarter of 2018 once the economy is fully supplied with newer denominations,” Arun Singh, a senior economist at Dun and Bradstreet, said.
Many Indians insisted they didn’t mind the hours of queuing up if it forced the rich to pay taxes. Others said the government lost some goodwill by flip-flopping on deposit guidelines during the window.
Modi will seek to regain some of that goodwill when he makes a New Year’s Eve address to the nation on Saturday. He is expected to offer a slew of sops to India’s poor ahead of the UP election.
