Due to lockdown, the economy witnessed a downturn, and since the government has taken relief measures for economic activity has shown upward movements. As people are slowly moving back to the banking system for transactions, cash demand is showing sluggish movement.
Reserve Bank of India had shown that currency with the general public, cash withdrawn by the general public from banks and ATMs has bogged down in pace for 3 consecutive fortnights. From 2 percent growth during the fortnight ended May 8, the growth slowed to 1.6 percent during the May 22 fortnight to 1.3 percent in June 05 fortnight.
As per the report in April, banks have witnessed credit card spends going back to before COVID levels after showing 70-80 percent of downfall and market indications are that consumers are relying less on cash and have gone back to digital mode of transactions within the unlock phase.
But the weekly growth in currency in circulation (CIC) released by the reserve bank within the banking industry has remained less steady but has moderated compared to the pace of growth in April and early May. In the first six weeks since the end March till May 08, Reserve Bank of India pumped in Rs 1.2 lakh crore cash. But a total of Rs 89,000 crore in the subsequent five weeks has released, RBI data shows.
Besides, in May a significant amount of cash demand that has gone into the DBT accounts of women and senior Jandhan account holders as a part of the stimulus package announced by the finance minister Nirmala Sitharamn in March, it is expected that around Rs 50,000-Rs 60,000 crores has been cashed out by the beneficiary account holders. Whereas in June the demand has not shown very apparent.
Economists have also cautioned that cash would return to banks when normalcy returns. “We, however, believe that going ahead significant currency in circulation (CIC) leakages could also be capped as a result of the normalization in economic activity,” said Upasana Bharadwaj, Indian economist at Kotak Mahindra Bank. FY2020, the current currency in circulation (CIC) shows 12.98% nominal GDP, more than the pre-demonetization level of 12 percent of Gross Domestic Production.
