On November 8th, Govt. of India had announced one of the biggest financial shake-ups this country ever witnessed, when it demonetized Rs 500 and Rs 1000 currency notes, thereby cancelling the legality of 86% of circulating cash in the market. In order to cope with the shock, and to normalize the situation, Govt. had put a limit on cash withdrawals from ATM and bank counters, which had introduced much inconvenience to the public at large.
Effective February 1st, Reserve Bank of India has removed such limits on cash withdrawals from ATM and bank counters. In a notification issued yesterday, RBI said, “Limits placed vide the circulars cited above on cash withdrawals from Current accounts/ Cash credit accounts/ Overdraft accounts stand withdrawn with immediate effect.”
However, this order has been passed only for current account holders of the banks; limitations on cash withdrawals are still in place for saving accounts holder.
The circular also mentioned the fact that banks can place their own specific limits on ATM and over-the-counter withdrawals, as was the case prior to demonetization move.
The circular issued by P Vijaya Kumar, Chief General Manager at RBI, also encouraged all banks to ‘encourage their constituents to sustain the movement towards digitisation of payments and switching over of payments from cash mode to non-cash mode.’
Some analysts claim that this withdrawal limit is indirectly linked to the elections which are taking place next month in several states.\
Earlier, Election Commission had requested RBI to relax cash withdrawal limits for poll-bound states, which was rejected. However, as limits have been removed, it would greatly benefit political parties, besides assisting business owners, who operate via current accounts.
More Cash = Less Digital Transactions
After the RBI circular, it is clear that the evil side-effects of demonetization has been finally put to rest by the Govt.
And the signals were evident since mid-January, when various mainstream newspapers started reporting that as cash crunch is easing, there is lesser queues infront of ATMs.
On January 13th, a Govt. official said to Hindustan Times: “The cash situation has improved. The RBI is monitoring (situation) closely and a decision on withdrawal limits will be taken keeping in mind all parameters,”
Meanwhile, Cash Logistics Association president Rituraj Sinha said, “Situation (at ATMs) is now near-normal in relation to ATM replenishment and the amount of money being injected into these machines,”
However, this also meant that digital transactions are slowing down, as people have started paying by cash.
At the same time LiveMint reported last week that due to currency being circulated in the market, digital transactions have fallen down. A report said that debit and credit card transactions at PoS machines fell by massive 41% in the month of January as 185.15 million transactions happened digitally this month, compared to 311 million last month.
Similarly, transactions done via RTGS fell by 27%, NEFT fell by 28% and mobile wallets decreased by 29% in the month of January (till 25th), compared to December.
It would be now interesting to observe the number of transactions done digitally, as it will show the actual picture of cashless drive, and also determine the fate of mobile wallets in India. We will keep you updated as more details come in..