CASH Crunch In India – FRDI Bill
What is a Cash Crunch? Ans – A cash crunch occurs when there is insufficient amount of money. Cash is like a blood and when body have blood, then only body can be lived. That’s why Cash can make the economy revive.
- People facing acute shortage of currency from last 2 weeks.
- ATM have gone dry.
- People are angry about it.
- Government claims that there is enough cash with the banks.
States in which most of the ATMs are dried.
1. Assam
2. Andhra Pradesh
3. Telangana
4. Karnataka
5. Maharashtra
6. Rajasthan
7. Uttar Pradesh
8. Madhya Pradesh
- MoS Finance SP Shukla : Rs 1,25,000 crore with Government
- Problem : Some states have less currency and others have more
- ———– Govt has formed state-wise committee
- ———– State also formed committee
- Contrary to the central bank’s claims that the problem is temporary.
- There has been around 30-40% cash crunch in the country.
- AIBOC (ALL INDIA BANK OFFICERS CONFEDERATION ): emerged due to the RBI’s constant pressure towards digital economy.
- A month back, the Reserve Bank disallowed banks from moving excess cash in one circle to deficient circle.
- Banks are saying that RBI is providing more of Rs 200 and Rs 100 notes.
Festivals – Payment of wages
Elections – ATM Recaliberation
What is causing the sudden cash crunch?
- The association also claimed people across the country are fearful over the proposed the FRDI (Financial Resolution and Deposit Insurance) Bill, 2017 which proposes to create a framework for overseeing financial institutions like banks.
- It said people are hoarding money, especially Rs 2,000 notes, instead of depositing it in its banks.
- The association added that RBI itself is holding back cash to push people towards using digital systems to make transactions.
- Major reason behind cash hoarding : lack of clarity on possible changes in the banking system.
FRDI Bill 2017 :
- Another reason for the cash crunch was the manner in which fears surrounding the Financial Resolution and Deposit Insurance Bill (FRDI) were not completely addressed.
- The FRDI Bill proposes to create a framework for overseeing financial institutions such as banks, insurance companies, non-banking financial services (NBFC) companies and stock exchanges in case of insolvency.
- Main duty of this Resolution Corporation, as per the draft bill, would look after the process and prevent the banks from going bankrupt.
- Tool : “writing down of the liabilities” aka “bail in”
- As per the provision of the FRDI bill, the resolution corporation can bail in a bankrupt financial institution.
- Bail-out : government can use public money deposited in banks to revive economy.
- Bail-in : It authorizes the Centre to take out the public money to revive a failing bank.
- At present, all deposits up to Rs 1 lakh are protected under the Deposit Insurance and Credit Guarantee Corporation Act that is sought to be repealed by this bill.
- 21 December 2017 FM in LS ; all depositors money in public sector banks will be protected and there is no need to create and fear pschosis.
- The government is yet to take a final call on insurance amount in the latest bill.
ATM Run
The focus of Central Bank has shifted to printing Rs. 200 notes but not all ATMs have been re-calibrated to dispense them. Even if the ATMs has been recalibrated,there are physical constraints on the number of notes pf each denomination that an ATM can hold depending on small note trays.
The current cash crunch does seem to be temporary and should be resolved once the demand-supply mismatch is addressed. What may persist is the ATM recalibration issue and it is important to examine.
The situation has now been improved from Monday when about 60% ATMs across India were dispensing cash, which went up to around 82% on Thursday.
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