India shakes of f note-ban blues

‘Is there cash at the ATM?’ is a question many still ask Bir Singh, posted outside an automated teller machine on Lodhi Road in the Capital. After weeks of going through the tedium of standing in queues for cash, and often coming away disappointed, many have got used to asking this question before entering an ATM.

“People still think there is a shortage. However, we have refills twice a day on weekdays and once on Sundays,” says Singh. Cash is back in full force in the National Capital Region and lining up to take out a little cash is a thing of the past. If an ATM is empty, it is mostly because of technical glitches, not due to no cash being available.

The situation in other parts of the country is very similar. Prime Minister Narendra Modi shocked the nation on November 8, 2016, by freezing 86 per cent of the cash in the system. He declared the existing ~500 and ~1,000 notes paper, albeit preserving their economic value if deposited in banks. The entire nation queued up outside ATMs. Bank branches worked overtime and on holidays as people stood in line to deposit the scrapped notes. Some even died while standing in the queue. Banks had parked ~6 lakh crore of their excess money with the central bank, at which point the Reserve Bank (RBI) resorted to extraordinary measures for absorbing the deluge. Neither the government nor the RBI has yet stated how much of money was deposited with banks till the window closed on December 30 for banks and by March with designated branches of the central bank, for no clear reason.

“Cash is available a lot more freely at ATMs now and the queues at banks have come down drastically. The situation has returned to normal but there’s still some odd days when there’s a shortage, especially on weekends,” said Nikhil Infant, who works at Garden City College in Bengaluru as head of social media and digital content.

Prasenjit Sen, a staffer with Tata Consultancy Services in Kolkata, is happy with the pace at which banks have been able to bring back ATMs to normalcy. “There is enough cash now,” he said, adding that he needed to withdraw less of a proportion of cash now from his salary account, as most of his transactions are digital. “I need cash for daily needs like purchasing vegetables and other grocery items and pay for transportation.”

Shanku Mukherjee, who resides in the city’s Tollygunge area and works as an accounting manager at a merchant trading firm is happy with the improvement in both cash availability and denominations. “Previously, ATMs were having only the ~2,000 banknote. Getting change was difficult. Now, there are plenty of ~100 and ~500 notes,” he said.

However, private bank ATMs still run dry in some pockets of Mumbai but there is a marked drop in cash hoarding. And, getting the ~2,000 note changed is mostly not a problem.

It is a similar situation in most tier-II and tier-III cities, even as semi-urban and rural areas could be facing some constraint in cash availability. The RBI data say currency in circulation as on April 28 was about ~14.32 lakh crore, from the pre-demonetisation level of ~17.97 lakh crore. This would mean in six months, the cash situation has normalised by 79.7 per cent, irrespective of the denomination the money has come in.

“Finding cash is not an issue. ATMs are always full. Most have forgotten about the effects of demonetisation as well,” said Ashutosh Gupta, a hotel owner at Faizabad in Uttar Pradesh.

Digital payments gain currency

While cash has returned in the economy, digital transaction is gaining currency. Not as much as the government or bankers might have expected. With more cash in hand, many are going back to their old habit of transacting in cash, something the State Bank of India chief had feared would happen when the situation normalised.

Still, some tough moves are forcing people to give up their old practice of transacting in mostly cash. In real estate, for example, almost all transactions are now happening by cheque and electronic means. Cash transactions above ~2 lakh in real estate are banned, with a fine equivalent to the amount paid. And, with the new-found aggressiveness of the income tax department, nobody wants to risk it.

Earlier, while large builders had insisted on “full white”, smaller ones and most resale transactions involved the bulk in cash. That has gone. “Cash in real estate is a thing of the past. We have learnt our lessons well,” said a real estate broker in Navi Mumbai. He now insists on cheque payments for even his brokerage on rents. Almost all commissions in property sale transactions happen through account payee cheques, he said.

Besides, some banks have decided to levy heavy handling charges on cash withdrawal or deposit in branches beyond a particular point or a number. This has killed the penchant for dealing in cash to a large extent.

But, the demonetisation did hit cash-dependent enterprises very hard. Many small and micro businesses had to close down and many of those have not come back to life. Many established companies shed people and did not rehire in those places. In the formal economy, the hardest hit was perhaps the microfinance sector. Delinquency rose from 1.4 per cent in September 2016 to peak at 23.7 per cent in February 2017.

However, the bloodbath expected by many commentators, including crippling of economic growth, has largely not happened. The economy grew at 7.1 per cent in 2016-17 and is expected to do so at 7.5 per cent in the current financial year and at eight per cent in the next.

Surviving the plateau

The resurgence of cash has had an effect on the government’s push for digital transactions. According to the RBI, digital transactions in April fell in both value and volume, compared to March, when it peaked at an all-time high. April saw total digital transactions of ~1.095 lakh crore, down 26.8 per cent, from the ~1.495 lakh crore in March. However, April was also the second-highest month for digital transactions. Some of the data points are representative of only eight banks and therefore, do not represent the full extent of digital penetration.

Experts say while more money has started flowing into the capital market after demonetisation, digital cash transactions are now plateauing, after rising in the months after the currency purge. “More money is going into the stock market and there is higher subscription to Initial Public Offers. After demonetisation, financial technology companies saw a massive increase in transactions but we believe that mechanisms such as payment wallets would not see incremental growth in the near future. However, apps such as BHIM will see better success,” said Amarjeet Singh, partner at consultancy KPMG.

The government has in the past six months launched a host of initiatives to promote digital cash and even acted like a disruptor by launching tools that might even make a mobile wallets redundant. BHIM, for one, has seen around 30 million downloads. Aadhaar Pay, which uses biometrics for money transfer, is also slowly finding takers.

Under its ‘Digital Payments Mission’, the government plans to reach a target of 25 billion in digital transactions by the end of this year. “Money transfers have further increased. Last month, it accounted for around ~4,500 crore of transactions. This is going to rise,” said Naveen Surya, chairman, Payments Council of India and managing director, ItzCash.

However, online wallet major Paytm says it is seeing rapid adoption of digital payments methods by both merchants and customers.

The company recently said the number of its wallet users had swelled to 218 million.