₹500 notes to push ₹2,000 out in mega ATM reboot

Biggest recalibration since demonetisation; ~2,000 notes to remain legal tender but to be pulled out of circulation

A major exercise to recalibrate the country’s 240,000-odd automated teller machines (ATMS) is underway to replace ~2,000 notes with ~500 notes. While the highest-denomination currency will remain legal tender, it will gradually be pulled out of circulation, sources in the know said.

Of the four cassettes within ATMS, three will now be filled with ~500 notes, and the fourth will either hold notes of ~100 or ~200 denominations. Cassettes holding ~2,000 notes have already been replaced in many ATMS, and may well be on their way out within a year. Banks are not putting ~2,000 notes back into play as earlier — these are going into their currency chests, on way to the Reserve Bank of India’s (RBI’S) vaults.

The RBI data shows that the share of ~2,000 notes as a percentage of the value of banknotes in circulation — 50.2 per cent in FY17 — has been taken up by the ~500 notes, which had a share of 51 per cent in FY19 — a near-perfect swap.

Multiple sources in banks and Atm-deploying and cash logistics firms (CLFS) said while the till-boxes were being slowly rebooted, there was no need for customers to panic.

“The ~2,000 note is very much legal tender, it is just being slowly pulled out of circulation. You have more of the ~500 notes in circulation these days,” said the chief executive officer of a CLF.

A senior official at a bank said, “In the post-demonetisation phase, we needed to have this higher denomination (of ~2,000) to get the economy re-monetised quickly.”

The pace of the ATM reboot will depend on the engineers and how quickly they are moved — it takes about 30 minutes to fix a machine.

An immediate fallout of the ATM reboot is that banks and white-label ATM deployers may stand to earn more by way of inter-change (currently at ~15 per swipe) as customers have to punch in more transactions.

It was, however, pointed out the average ticket-size of cash withdrawals is at about ~3,600, and the largest single-swipe pull-out at ~10,000 was an “outlier”.

“If anything, the cost of loading these ATMS will go up as we have to put in more cash in denominations less than ~2,000, and it means more trips by cash vans to do so,” said the CEO of a managed services’ operator.

Subash Garg, former secretary, the Department of Economic Affairs, had in November 2019 said “a good chunk of the ~2,000 notes are actually not in circulation, having been hoarded. The ~2,000 note, therefore, is not presently working as a currency of transaction.” He added that “withdrawing these notes from circulation would not cause any disruption. A simple method, depositing these notes in the bank accounts (no counter replacement), can be used to manage the process.” It is this process which has now led to ATMS being recalibrated.

ATM cassettes can carry notes ranging between 2,300 and 2,600 pieces -- it is denomination-agnostic. The cassette’s capacity can vary depending on the ATM manufacturer. In terms of share of deployment, NCR Corporation has close to 50 per cent of the 240,000 ATMS, followed by Diebold Nixdorf at 26 per cent thereabouts.

When specifically asked which among the ~100 and ~200 denomination will find a place in ATMS’ cassettes in the days ahead, another CLF executive explained that the old and new ~100 notes can’t reside together as they are not of the same dimensions. “The supply of these two kinds of notes will decide which denomination gets loaded into ATMS. Then, demand at ATMS, which varies across locations, will decide whether we load them with ~100 or ~200 notes,” he added. There is a clear link between the ATM recalibration and the banknotes in circulation. According to the central bank’s Annual Report (201819), the number of pieces of ~2,000 notes as a percentage of the total volume of banknotes in circulation fell to 3 per cent in FY19 from 3.3 per cent each in FY17 and FY18. But its percentage of the total value of banknotes in circulation fell even more sharply at the end of these periods to 31.2 per cent from 37.3 per cent in FY18 and 50.2 per cent in FY17.

There was a corresponding shift in the ~500-note narrative. As a percentage of the total volume of banknotes in circulation, the share of ~500 denomination shot up to 19.8 per cent in FY19 from 15.1 per cent in FY18 and a mere 5.9 per cent in FY17. Still more impressive is its share as a percentage of the total value of banknotes in circulation at 51 per cent in FY19 from 42 per cent in FY18 and 22.5 per cent in FY17.

The role of the ~200 note is also getting to be bigger. First issued on August 25, 2017, the central bank’s data for FY18 and FY19 shows, its share is moving up fast. As a percentage of the volume of banknotes in circulation, this stood at 3.7 per cent in FY19 and 1.8 per cent in FY19; and as a percentage of the value of banknotes in circulation, at 3.8 per cent in FY19 and 2.1 percent in FY18.