The cash crunch and the consequent problems following the government’s demonetisation of Rs 500 and Rs 1,000 currency notes may last longer than feared. Partly this is because nearly two lakh ATMs across India are to be configured to dispense the new Rs 500 and Rs 2,000 notes.
This was even acknowledged by Finance Minister Arun Jaitley on Saturday – three days after the move to curb black money – when he said it would take about two to three weeks for all the machines to be ready.
Experts say he may have been a bit optimistic.
Replacing Demonetised Notes To Take Months
As per data furnished by the Finance Ministry, Rs 17,50,000 crore worth of currency notes were in circulation in October-end, out of which around 84 percent or Rs 14,50,000 crore is in the now defunct Rs 500 and Rs 1,000 notes.
Against this, data furnished late on Sunday by the Finance Ministry said in the first four days – 10 November to 13 November – only Rs 50,000 crore were dispensed to customers either by withdrawal from their accounts or ATMs, or exchanged at bank and post office counters.
This, in 18 crore transactions, which has already made the banking system burst at its seams.
This does not go well with assurances given by the Reserve Bank of India (RBI) that it has enough currency to replenish banks for their disbursals. This, also after RBI printing presses are said to have started printing the new currencies several days ago, to create a good buffer.
Accordingly, even if we assume that the maximum amount that can be printed in a day – Rs 12,500 crore – is being disbursed in Rs 2,000 denomination on a daily basis, it will take 116 days to replenish the financial system. This also assumes that the total amount of currency declared illegal would be replaced with new notes.
ATMs To Be Calibrated Afresh
Banking and financial experts IANS spoke with were of the view that all ATMs in India needed to be calibrated afresh to disburse various currency from Rs 50 to the newly minted Rs 2,000 notes according to their weight, dimensions, design, and security features.
The process, they say, will take over a month for the machines all over the country to start functioning.
ATMs and their cash trays so far were mainly made to dispense 100 and now-scrapped 500 and 1,000 rupee notes. The two high denomination notes were declared illegal by the government on November 8.
Experts said since the new Rs 500 and Rs 2,000 notes would be different in size and shape from the old Rs 500 and Rs 1,000 ones, engineers would have to readjust the cash trays, or cassettes, and the software running the machines.
Jaitley told the media on Saturday that “the finance ministry is constantly monitoring the cash replacement exercise,” referring to another time-consuming process of replacing invalidated currency notes with new bills in the teller machines.
Asked why the government had not recalibrated the machines in advance, Jaitley said it would have defeated the purpose “to maintain secrecy” of the surprise move.
Rajiv Kaul, CEO and Vice-Chairman at CMS, one of India’s largest cash management companies, told IANS via email that the immediate focus after the government’s decision was to flush out the junked currency notes from the machines.
The second step would be to replenish the machines with new notes.
But before that, they had to “ensure every ATM recognises the new notes and manages multiple replenishments including those of lower denominations,” Kaul said.
Delays, Breakdowns – Another Challenge
This is where the challenge lies. Because cash trays of all the machines have to be replaced with newer ones that can handle new currency notes. The machines would also need to be extensively tested before cash supply is restored.
“We believe the entire country's ATM network will be streamlined to the new order in the next two to four weeks,” Kaul said.
Anuj Chauhan, a banker in Delhi, said a technician has to physically visit an ATM for reconfiguration that would normally take about four hours for each machine.
That means the reconfiguration of all two lakh machines would take about 800,000 man hours.
If a technician completes two ATMs a day, companies managing the machines would together need some 4,000 trained technicians to complete the process in 30 days. Finding them would be another challenge.
If you build in natural delays and breakdowns into this calculation, it means the serpentine queues and chaos outside ATMs won't go away anytime soon.
(Published in arrangement with IANS.)