After ATMs in ran dry and ‘No cash’ signboards reminded the citizens of the post demonetisation period, the government said unusually high demand of cash has led to this ‘temporary’ shortage. According to the government the reason for shortage of cash to the fact that the ATMs have not been re-calibrated or adjusted to accept the new Rs 200, Rs 500 and Rs 2000 notes. However, experts feel that post-harvest demand, festival and salary and bonus payouts and elections in Karnataka are the main reasons for a spike in cash demand.
However the the All India Bank Officers’ Confederation said around 30-40 per cent cash crunch in the country has emerged due to the RBI’s constant pressure towards digital economy.
While the RBI has formed an inter-state committee to oversee transfer of currency from the states with adequate cash to those with a shortage, the association said the RBI – to make India a cashless economy – is holding back cash to push people towards using digital systems to make transactions. Currency notes of Rs 2,000 have been out of circulation, according to news reports.
The association also claimed that people across the country are fearful over the proposed the FRDI (Financial Resolution and Deposit Insurance) Bill, 2017, which proposes to create a framework for overseeing financial institutions like banks. It said people are hoarding money, especially Rs 2000 notes, instead of depositing it in banks.
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Earlier Finance Minister Arun Jaitley said that he had reviewed the currency situation in the country. “Over all there is more than adequate currency in circulation and also available with the Banks. The temporary shortage caused by ‘sudden and unusual increase’ in some areas is being tackled quickly,” he said.
WHAT IS FRDI BILL
The FRDI Bill proposes to create a framework for overseeing financial institutions such as banks, insurance companies, non-banking financial services (NBFC) companies and stock exchanges in case of insolvency. The Resolution Corporation, proposed in the draft bill, would prevent the banks from going bankrupt. It would do this by “writing down of the liabilities”, a phrase some have interpreted as a “bail-in”. The draft bill empowers the Resolution Corporation to cancel the liability of a failing bank or convert the nature of the liability. It does not specify deposit insurance amount.
Connection between FRDI Bill and hoarding
According to a provision of the FRDI bill, the corporation can bail-in a bankrupt financial institution. Through the bail-out option, government can use public money deposited in banks to revive economy, while the bail-in option authorizes the centre to use public money to revive a failing bank. This particular clause has been a bone of contention. At present, all deposits up to Rs 1 lakh are protected under the Deposit Insurance and Credit Guarantee Corporation Act that is sought to be repealed by this bill. Assuaging these fears the Finance Minister Arun Jaitley had told the Lok Sabha in December that depositors’ money in public sector banks will be protected and there is no need to create any fear psychosis.