J & K

RBI restricts cash flow to J&K, may impact economy seriously

December 12, 2017 07:48 PM

Srinagar, December 12: Bank regulator Reserve Bank of India (RBI) has started reduced supplies of fresh currency notes to J&K which has started impacting the market. It has reduced the ATM networks to manage the cash dispensation routinely and the process could add to the economic tensions that are already visible in J&K because of demonetization, GST and two failed tourist seasons.

Banks said that most of this cash actually landed in the bank vaults during the demonetization campaign. “Whatever cash is out in circulation, it is quite insufficient to the requirements of the market,” the official said.

The impression in the banking sector is that the reduced supplies is seemingly a “policy intervention” under which the RBI is restricting high denomination notes to the border states, including J&K.

 “The crisis has two facets,” one senior banker told Kashmir Life. “Against the requirement of Rs 100, they are sending currency notes worth Rs 30 and then it comes in smaller denominations.” For the last one month, not many currency notes of Rs 2000 or Rs 500 have come to the state. “Whatever has come has come in smaller denominations like Rs 100 and 50 and Rs 200.”

The crisis has started impacting the banks’ ability to load the ATM to the possible capacity in value of the cash. Normally, an ATM can have a cash of Rs 40 lakh but given the lower denominations, it can hardly reach Rs 7 lakh. It has added to the costs of the banking sector to manage the ATM show because they have to load the machines as frequently as possible, in certain cases thrice every 24 hours. Given the security situation, the movement of cash is already a crisis.

J&K has nearly 2400 ATMs in operation across the state, mostly belonging to the J&K Bank that controls most of the banking sector across the state. The network dispenses a cash of around Rs 100 crore a day, by an average.

 “The real crisis is that the decreased supplies of currency notes will leave the market cash hungry and the percentage will grow proportionally to the deficit supplies,” another banker said. “It is at that stage the economy will start taking a hit especially the retail and the routine.”

Talking anonymously an official of a leading public sector bank admitted the crisis saying they have been sending requests to the RBI quite frequently. “Somehow, we have not got a plausible response so far,” the official said.

Though J&K is fast embracing the digital banking and the plastic money, it still is a cash economy having more cash in the system than in rest of India. Given the security situation, weather conditions and the traditional set up, most of the people usually keep sufficient cash at home. Banks said that most of this cash actually landed in the bank vaults during the demonetization campaign. “Whatever cash is out in circulation, it is quite insufficient to the requirements of the market,” the official said.

A senior official serving private sector bank said that the process of reduced supplies is unprecedented. “I have not seen this even at the peak of the militancy in 1990,” he said.

 

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