India: Cash crunch ahead of polling season

  • Cash dispensers in parts of India, particularly the South, began to run out of currency notes ahead of the imminent Karnataka elections amid concerns over a federal bill proposing the ‘bailing-in’ of stressed lenders by depositor funds, and the likely hoarding of high-denomination bills in the poll-bound peninsula.
  • In other parts of the country, the cash crunch was not as severe as in the South, where two more states — Andhra Pradesh and Telangana — face assembly polls in less than a year. In Tamil Nadu, the situation was relatively normal, with no reports of panic cash withdrawals.
  • Politics may have played a role in determining the supply of currency notes in the poll-bound states.
  • Bankers in Andhra Pradesh, Telangana and Karnataka said that more than 60% of the cash, predominantly in high-denomination INR2,000 bills, was not returning to the system, and that they have flagged the trend to the regulator.
  • The sudden surge in withdrawals in Andhra Pradesh and Telangana was attributed to widespread apprehensions over the proposed Financial Resolution and Deposit Insurance (FRDI) bill, coupled with an increased shift of savings towards gold and real estate purchases. There are concerns that some provisions of the FRDI bill may use depositors’ cash to help out struggling banks.
  • Elections are cash guzzlers too as political parties spend on campaigns and give away freebies to voters through unaccounted money.
  • RBI data shows that historically there has been a spike in currency demand during elections.

External Link : https://economictimes.indiatimes.com/news/economy/finance/acute-withdrawal-symptoms-amid-cash-and-carry-ahead-of-elections/articleshow/63808173.cms

External Link : https://economictimes.indiatimes.com/news/economy/finance/cash-crunch-ahead-of-poll-season-a-cut-in-supply-rs-2000-notes/articleshow/63807998.cms

18-Apr-2018


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