There seems to be a cash crunch on. If so I have a few alternate theories other than the ones politically being discussed. (Thread)
There was a recent change in RBI guidelines on subcontractors doing cash management. They now need to have a net worth of 100 cr., have a fleet of at least 300 cash vans, and so on. rbi.org.in/Scripts/Notifi…
While subcontractors have a year to get their networth to 100 cr. any new contracts will need the 100 cr. worth right now. And there are number of new rules - like no cash transport in the night, restrictions on who can be employed etc.
This notification was on April 6. Did banks start to make changes based on this regulation, which has affected cash supply? Have subcontractors, the smaller variety, started to get scared they will be out of business and thus started to exit?
Any of those actions will result in a cash shortage, in places where the contractor sizes are not very large.
Second, no one likes 2000 rs. notes. No one says wow, I got a 2000 rs note from an ATM. People are like: damn now I have to find someone who'll give change for this stupid 2000 rupee note. It's likely that RBI has heard this too - and started to provide more 500s?
Banks though prefer the 2000. That allows them more cash rupees per ATM, and less need to refill (there are a fixed number of notes in any ATM). If you don't give them the 2000s they can take the 500s but some ATMs are configured for a minimum of so many 2000s, so many 500s etc.
So giving them more 500 notes means banks will have lesser cash in the ATM, both from not enough 2000s to go by, and also because Rs. 500 is 1/4th of Rs. 2000. An ATM that has 2 cr. in 2000 rs. notes will have 50 lakh in Rs. 500 notes. (as an example)
Which therefore means less cash per ATM. A shift like this will have a cash crunch temporarily and banks will not want to do frequent refills (there's a cost). But they'll take some time to calibrate, in this time there is a cash shortage.
Third, and this is a longer term one, is the need to use lockable casette replacements rather than replacing cash in ATMs. The notification is here: rbi.org.in/Scripts/Notifi… But this has a three year tenure and isn't urgent.
Casette replacement will require major ATM reconfiguration and process upheaval. You have to get people to fill and lock casettes elsewhere and have a mechanism to recount cash when it's returned (since casette is locked).
This third one is unlikely to be a cause for the cash crunch, but we need to know about it and that at some point it will have an impact.
Are these more reasonable explanations for the cash crunch? Im not pro-party-A or anti-party-A - this is not a political discussion. But hoping to hear reasoned debate.
