Panic Over Losing Money if Bank Fails Creates Cash Crisis in Andhra, Telangana
THE WIRE
April 06, 2018
New Delhi: The ‘bail-in’ clause in the Financial Resolution and Deposit Insurance (FRDI) Bill – referred to a joint parliamentary committee in August after cabinet approval – has triggered widespread fear among the people of Andhra Pradesh and Telangana that they will lose their heard-earned cash if a bank goes bankrupt.
The growing panic has allegedly resulted in heavy cash withdrawals, leading to a cash crunch in ATMs and banks, Indian Express reported.
The contentious clause in the Bill proposes using depositors’ money to bail out their bank or financial institution in case it fails.
As The Wire earlier reported, the Bill covers bankruptcy of businesses such as banks and insurance. It proposes a mechanism for financial resolution in cases banks face ‘material’ or ‘imminent’ risk to viability depending on their capital and asset worth.
According to H. Purnima, the regional manager of State Bank of India (SBI) in Visakhapatnam, people are withdrawing cash even if they don’t require it and money is not coming back into the banking system. Purnima further told Indian Express that “all banks” have been witnessing such cash withdrawals since November 2017, adding: “We are unable to refill ATMs because people are not depositing in banks.”
According to another report, the salaried, who typically withdraw only Rs 5,000 to Rs 10,000 in the first few weeks of a month, have been taking out the entire amount from ATMs as soon as their salary gets credited. “It is partially due to the FRDI rumours and partially because people think cash may not be available later, so why take the risk,” M. Harshavardhan, the general manager at SBI’s Hyderabad head office, told Indian Express.
Telangana’s finance minister Etela Rajender, however, put the onus of the crisis on the Reserve Bank of India (RBI), which he claimed was not sending enough cash to banks. Rajender recently informed the Telangana Legislative Council: “The crunch is due to inadequate supply of currency by RBI, reduction in cash inflow from the public, high demand for higher denomination notes. ATMs are going dry and banks are also not giving cash. RBI officials are saying cash going out of banks is not coming back in Telangana and Andhra.”
Some officials have also claimed that the country’s central bank has deliberately cut down cash supply to banks forcing people to make digital payments and increase cashless transactions.
The Union finance minister, Arun Jaitley, had in December assured depositors that the Bill protected them even if the amount was over Rs 1 lakh – deposits up to Rs 1 lakh is insured – because the rules would not apply to PSU banks.
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