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ATM Withdrawal Limits Should Be Lifted Soon, Says SBI’s Arundhati Bhattacharya

It may take another two months before there is enough currency to lift overall withdrawal restrictions, says SBI’s Arundhati Bhattacharya

People walk through a State Bank of India branch in Mumbai, India. (Photographer: Abhijit Bhatlekar/Bloomberg News)
People walk through a State Bank of India branch in Mumbai, India. (Photographer: Abhijit Bhatlekar/Bloomberg News)

In a week from now, the government’s 50-day timeline for the exchange of Rs 500 and Rs 1,000 notes at bank counters will end. The passing of that deadline, however, will bring little relief for citizens who will continue to face restrictions on accessing their money in cash.

In an interview with BloombergQuint, Arundhati Bhattacharya, chairman at State Bank of India said that it may take another two months before there is enough cash in the system to allow citizens to withdraw their money without any restrictions.

At last count, the Reserve Bank of India had pumped in Rs 5.9 lakh crore in new notes into the banking sector to meet cash needs. This, however, is only about a third of the Rs 15.4 lakh crore taken out of the system as part of the government’s decision to withdraw Rs 500 and Rs 1000 notes from circulation. 86 percent of the currency in circulation had been scrapped as a result of that decision.

The situation has improved since the initial days, said Bhattacharya, while adding that the availability of Rs 500 notes remains crucial to restoring liquidity in the system.

What we have done in the last 40 days is that we have pushed out a lot of Rs 2,000 notes as well as Rs 100 notes. I think, almost Rs 6 lakh crore has been put out in the system. Now what we are doing is putting out more Rs 500 notes...What we are basically trying to do is to restore the liquidity in the system. Notes of Rs 2,000 represented a store of value but Rs 500 is more of a mode of exchange. With just Rs 2,000 and Rs 100 notes spending was difficult. But with the Rs 500 notes coming in, I think that problem will get sorted.
Arundhati Bhattacharya, Chairman, State Bank of India

In response to a Right To Information query filed by activist Anil Galgali, the RBI said that it has printed Rs 2,000 notes worth Rs 4.9 lakh crore when the demonetisation decision was announced on November 8. The central bank, however, had printed no new notes of Rs 500.

ATM Withdrawal Limits Should Be Lifted Soon, Says SBI’s Arundhati Bhattacharya

While the availability of Rs 500 notes is expected to improve, Bhattacharya acknowledged that the system is still a couple of months away from normalcy. In the interim, she believes that ATM withdrawal limits should be eased since all machines have now been recalibrated.

At present, citizens can only withdraw Rs 2,500 per day per card. In the initial days after demonetisation, ATM machines could not function as they needed to be recalibrated to accommodate new notes. This process is now complete.

I think the ATM limits should certainly be increased, and it’s important, because it’s a 24X7 channel, so people can use it at their own convenience. The moment Rs 500 notes are available in sufficient numbers, the ATM restrictions will definitely be relaxed. So that would happen, and overall, I think the increase of the ceiling, is something that would also happen over the next two months.
Arundhati Bhattacharya, Chairman, State Bank of India

Watch an excerpt of the interview here:

Cost To Banks

The withdrawal and exchange process of bank notes has imposed a significant cost on banks in terms of the need for increased manpower and the loss of normal business. In addition, banks have been asked to waive the fee (known as merchant discount rate or MDR) charged on digital transactions and also charges on ATM usage.

All this will impose a cost on banks, said Bhattacharya while adding that this may not impact the cost-to-income ratios of banks substantially. She, however declined to put a number to the cost borne by the bank due to the demonetisation.

We have not yet completed the costing because this is still an operation that is going on. But yes, the cost would be there. We had to spend on recalibrating of the ATMs, the MDR has been taken out, the ATM transactions have been made free, there is a staff cost to this whole thing, and more than that, there is also a cost in terms of loss of business.
Arundhati Bhattacharya, Chairman, State Bank of India

Starting January, banks need to refocus on generating lending business which has crashed in the aftermath of demonetisation. Loan growth slipped to 5.8 percent year on year as of the fortnight of December 9.

“I think by the middle of January, we should be back full steam. But till then, that business also has got interrupted somewhat, so there is a cost to all of this, and that obviously is something we have got to worry about,” said Bhattacharya.