Curbs on ATM cash withdrawal likely to continue, say experts

According to the latest report by RBI, the central bank has removed Rs 4.99 lakh crore from banks issuing bonds under MSS.

Published: 16th January 2017 02:57 AM  |   Last Updated: 16th January 2017 02:58 AM   |  A+A-

For representational pupose (File | Reuters)

Express News Service

KOCHI: As the value of currency notes in circulation dwindles day by day and the Reserve Bank of India (RBI) continues to suck out liquidity through the Market Stabilisation Scheme (MSS), the weekly cash withdrawal limit of Rs 24,000 per debit card is unlikely to be removed or enhanced anytime soon, say experts.

The value of notes in circulation on November 4, 2016 (before demonetisation) was Rs 17.74 lakh crore. It has more than halved now (Rs 8.98 lakh crore as on January 6). It will be safe to assume that the control over weekly withdrawal limit will continue for at least a few weeks. Until the new notes are back in circulation, the increase in withdrawal limit will not take place.

According to the latest report by RBI, the central bank has removed Rs 4.99 lakh crore from banks issuing bonds under MSS. As the notes in circulation are limited and a large chunk of notes are at the printing stage, the curbs are likely to continue.

“RBI considers Rs 10 lakh crore as the ideal liquidity in the country. Hence, it has removed Rs 4.99 lakh crore from the market. There is still is a currency crunch as the new notes are not being printed and injected into the market. Even though the money is with RBI theoretically, without new notes are available it could not pump in money,” said Salim Gangadharan, non-executive chairman of South Indian Bank and former chief general manager of RBI

Under MSS, bonds are issued by the government aimed at providing the central bank with a stock of securities to intervene in the market for managing liquidity, usually with maturity of 28, 56 and 63 days.
The ceiling for bonds issued under MSS was increased to Rs 6 lakh crore from the current Rs 30,000 crore last month.

“Now there is shortage of currency and the removal of control on withdrawal limit solely depends on how fast the notes can be printed,” said C J George, managing director, Geojit BNP Paribas Financial Services.
On January 9, RBI announced auction of 63 days Government of India Cash Management Bills (CMBs) under MSS for Rs 50,000 crore using multiple price auction method.

“The bonds under MSS come with a maturity date. Banks have parked the amount with the central bank. Eventually, the daily withdrawal limit is here to stay, at least for a few weeks,” said Sanjeev Kumar G, founder of Prognoadvisor.com, a financial analysis firm.
RBI has been using MSS after a long gap of eight years to manage the ‘money flooding’ owing to demonetisation.

However, P G Jayakumar, former managing director and CEO of Dhanlaxmi Bank, said that even though the excess deposits with banks are converted into bonds, it will not affect individual customers as the money in bonds can withdraw at any time. RBI has, on January 13, conducted auctions of 35 days and 49 days CMBs under MSS for Rs 50,000 crore each.

When contacted, the Department of Banking Regulation of RBI said it has “no comments to offer”. MSS and control over the weekly withdrawal limit are unrelated to each other, RBI said. But, the central bank did not give any indication when the curbs on cash withdrawal through ATMs would be lifted.

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