As India imposed a lockdown to fight COVID-19, people withdrew almost four times more cash from bank branches and ATMs than they did on an average every month in financial year 2019-20.
Currency with public jumped by Rs 86,000 crore to an all-time high of Rs 23,41,851 crore in March 2020. While it increased by Rs 52,541 crore in the fortnight-ended March 13 just ahead of the commencement of restrictions by individual states, it rose by Rs 33,539 crore more over the next fortnight till March 27.
Data from the Reserve Bank of India shows that the average monthly increase in currency with public stood at Rs 23,895 crore. During 2019-20, the currency with public increased 14 per cent or Rs Rs 2,86,741 crore to Rs 23,41,851 crore.
According to the RBI, currency with the public is arrived at by deducting cash with banks from the total currency in circulation. Currency in circulation refers to cash physically used for transactions between consumers and businesses. In simple words, currency with public is the quantum of cash individuals hold.
Economists said the only plausible reason for this jump could be that people started accumulating cash ahead of the lockdown as the Central government and states imposed travel restrictions, closed cinema halls and shopping malls, and aggressively pushed social distancing norms.
“In such a scenario, there is a tendency to keep cash, even if one does not keep it normally. This is also because in such a scenario, as organised retail has suffered, the neighbourhood grocery store is the most reliable,” said DK Pant, Chief Economist, India Ratings.
Banking experts said this also indicated that more of cash was being used for transactions, which explains higher cash withdrawals to support the same level of currency demand.
A “bullwhip effect” too could have led to a surge in demand for currency, they said. Such an effect on the supply chain occurs when changes in consumer demand prompts companies to order more goods to meet new demand.
The RBI has been pushing for digital payments in the last two weeks with Governor Shaktikanta Das himself taking to twitter and TV channels to push the “Pay Digital, Stay Safe” campaign.
Banks have, meanwhile, reported that branches and ATMs are working normally. “All the customers will get the minimum services which are required. This means they will be able to operate their accounts, deposit cash, receive cash, make transfers,” said the CEO of a nationalized bank.
After currency notes of denomination Rs 500 and Rs 1,000 were withdrawn in November 2016, the cash in circulation had fallen to around Rs 9 lakh crore in January 2017. Since then, cash in the system rose steadily.
