Who moved my money? 4 factors that led to the shortage of currency notes

Tuesday 17 April 2018 10:21 PM IST

by Pinky Baby

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Who moved my money? 4 factors that led to the shortage of currency notes

Long queues have appeared before the bank branches and ATM counters. File photo

Kochi: The people of India are struggling with a shortage of currency notes. The phenomenon, which was originally confined to Andhra and Telangana, has spread to all other states. ATM counters have been shut in most towns. Long queues have appeared before the bank branches. Boards have been put up to notify people about the shortage of currency notes.

Union finance minister Arun Jaitley tweeted that an unusual increase in demand in some areas has led to the shortage of currency notes. He promised to rectify the issue within three days but the problems are deep-rooted.

What has really happened? What prompted a financial crisis that brings to mind the desperate days of demonetisation?

The FRDI Bill

Rumours surrounding the Financial Resolution and Deposit Insurance (FRDI) Bill have triggered the present crisis. Concerns have been raised that the bill, if passed into a law, could make the deposits in banks insecure. Banks in south India have witnessed a mass exodus of money that sparked a shortage of currency notes.

Soured loans

The borrowing scam involving the Punjab National Bank and Nirav Modi has dented the credibility of banks. Account holders have started withdrawing money from the banks on fears that soured loans and scams could undermine the financial institutions. As more and more people started withdrawing money, banks experienced a shortage of currency notes. The banks were forced to put up boards at branches and ATM counters to notify people about the shortage, which only added to the panic.

Festival season

Festivals such as Akshaya Trithiya may have also contributed to the increase in demand for money. Many people have withdrawn money to buy gold on the auspicious day that falls on Wednesday. Bank managers in Kerala said that the withdrawal rate in the state had gone up slightly ahead of Vishu.

Dipping deposits

Bank deposits are heading south, according to latest available data. Deposit rate in the just-concluded financial year nosedived in comparison with 2016-17. Deposit rate has fallen to 6.7 per cent in April, compared to 15.3 per cent in 2016-17. Meanwhile the bank credit ratio increased to 10.3 percent, compared to 8.2 percent in the previous financial year.

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