Wednesday, April 25, 2018

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The problem of cash crunch has been compounded by flaws in the management of currency supply system. The RBI has stopped printing Rs 2,000 notes, in which the bulk of the cash with the public is being held, says N Chandra Mohan23 Apr 2018 | 12:55 AM

The Rs 2-trillion question is why is there a shortage of currency in certain parts of the country — manifested in ATMs running out of cash — despite the RBI’s claim "there is sufficient cash in its vaults and currency chests".

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The Rs 2-trillion question is why is there a shortage of currency in certain parts of the country — manifested in ATMs running out of cash — despite the RBI’s claim "there is sufficient cash in its vaults and currency chests". The central bank has also stated that printing of notes has been ramped up in all its four note printing presses. The Union Finance Minister has also assured the nation that the shortage is only temporary, caused by a "sudden and unusual increase in demand", and is being tackled quickly as there are adequate currency stocks with the banks.

The official response, naturally, raises the question as to why there is such a spike in demand. The explanations trotted out include the heavy cash requirements for the rabi harvest season as during Baisakhi and various festivals. But these seasonal events occur every year without causing any surge in the cash demand. There is also a suggestion that cash is the king with the public that’s worried about the crisis in the banking system, especially the public sector banks. But this view does not hold as there is no evidence so far of any run on these banks although deposit growth has slowed.

Perhaps a clue about the unusual cash demand lies in the observations of a former RBI governor in April 2016. "Around election time, cash with the public does normally increase. You can guess as to the reasons why, we can guess also guess" he told reporters after a bi-monthly monetary policy review. The elections then included those for Assam, West Bengal, Tamil Nadu and Puducherry that saw a substantial increase in money with the public of Rs 600 billion. He added that one observed a spike not just in the state going to elections but also in neighbouring states.

Two years later, there is again a sharp spurt in currency with the public ahead of important elections in Karnataka, Rajasthan and Chattisgarh. Shortages are being reported in Telengana and Andhra as well. Currency with the public has seen a massive increase in the past two to three months of this year. In early January, the money in people’s hands was Rs 16.3 trillion. The latest number indicated by SBI Chairman Rajnish Kumar to CNBC TV18 is Rs 18.3 trillion. In other words, people have withdrawn (or hoarded) a whopping Rs 2 trillion from the banking system from January to April this year.

While money in people’s hands has sharply increased, the problem of running out cash has been compounded by flaws in the management of the currency supply system. The RBI has stopped printing Rs 2,000 notes, in which the bulk of the cash with the public is being held. Somewhat belatedly, it is stepping up five-fold the printing of Rs 500 notes. Its clear preference is to increase the share of smaller denomination notes amid reports that its press at Nashik has stopped printing of Rs 200, Rs 100 and Rs 20 notes altogether since April 1.

What is to be done? The currency supply system needs to be revamped and geared up to meet the transactional cash demand in a fast growing economy. One of the changing goalposts of the demonetisation exercise of November 8, 2016 was to reduce the use of cash. But contrary to the views of officialdom, there is no cashless economy in the world. Even in the US, cash accounts for 45 per cent of transactions. There is no appropriate level to which cash must be reduced, as a vast segments of India’s agrarian and informal economy is still cash-driven and whose requirements must be met.

— The writer is New Delhi-based economics and business commentator

RBI’s infrastructure 

  • A network of 19 issue offices

4,034 currency chests (including sub-treasury offices, a currency chest of RBI at Kochi

3,707  small coin depots of commercial, cooperative and regional rural banks

Currency chests & depots

Category Currency Small Coin 

Chest Depot

SBI 1,893 1,793

SBI associate banks 754 722

Nationalised banks 1,198 1,014

Private Sector Banks 168 164

Co-operative Banks 4 4

Foreign Banks 4 4

Regional Rural Banks 5 5

State Treasury Offices (STOs) 7 0

RBI 1 1

TOTAL 4,034 3,707


RBI Regional Offices Nov 8, 2016 April 1, 2017- Total

  to Mar 31, 2017 Feb 28, 2018

Ahmadabad 76,147 40,954 1,17,100

Belapur 49,979 33,215 83,194

Bengaluru 75,614 33,564 1,09,178

Bhopal 47,687 38,884 86,571

Bhubneshwar 31,484 21,192 52,676

Chandigarh 71,068 32,154 1,03,222

Chennai 78,497 35,437 1,13,934

Guwahati 34,492 25,029 59,521

Hyderabad 90,568 54,337 1,44,905

Jaipur 52,791 23,654 76,445

Jammu 15,157 8,973 24,130

Kanpur 74,462 25,307 99,769

Kolkata 61,902 30,121 92,024

Lucknow 61,691 28,716 90,407

Mumbai 54,985 30,373 85,358

Nagpur 46,972 40,047 87,019

New Delhi 75,176 21,168 96,344

Patna 58,712 39,937 98,649

Thiruvananthpuram 41,232 29,845 71,077

GRAND TOTAL 10,98,617 5,92,906 16,91,523

From Press to ATMs 

  • Based on RBI’s indent, designated printing presses and mints dispatch banknotes and coins to RBI offices
  • From RBI offices, banknotes and coins are remitted to 4,034 currency chests and 3,707 coin depots operated by commercial banks
  • Commercial bank branches receive banknotes and coins from currency chests and coin depots
  • Banknotes and coins are then distributed through bank branches and ATMs


  • RBI releases currencies under the RBI Act, 1934 and Indian Coinage Act, 2011
  • It assesses annual demand through its regional offices
  • It ensures quality of banknotes by timely replacing soiled notes
  • Manages with regional offices and currency chests of banks
  • Annual currency printing capacity is about 24 billion banknotes 
  • After demonetisation, notes worth over Rs 16.92 lakh crore printed
  • Over Rs 15.28 lakh crore demonetised notes returned by June 2017

Minting & Printing

Four printing presses to print and supply banknotes 

  • Dewas in Madhya Pradesh (owned by SPMCIL*, GoI)
  • Nasik in Maharashtra (owned by SPMCIL, GoI)
  • Mysore in Karnataka (owned by BRBNMPL**, RBI)
  • Salboni in West Bengal (owned by BRBNMPL, RBI)

Four government-owned mints for coins 

  • Mumbai, Noida (UP), Kolkata and Hyderabad

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