People wait outside an ATM in Thimmapur, Telangana. People wait outside an ATM in Thimmapur, Telangana.

Rumours that the Financial Resolution and Deposit Insurance (FRDI) Bill, proposed last June, will cause losses to depositors in case a bank goes bankrupt has allegedly led to heavy withdrawals, leading to a cash crunch in ATMs and banks of Telangana and Andhra Pradesh.

The FRDI Bill, which is being examined by a joint Parliamentary committee, has a bail-in clause which proposes to use depositors’ money to bail out their bank or financial institution if it fails.

Some bank officials also believe the Reserve Bank of India (RBI) has deliberately reduced cash supply to banks to force people to make digital payments and increase cashless transactions.

“People are withdrawing money even if they do not need it and keeping it with them. Cash is not coming back into the banking system,” State Bank of India (SBI) regional manager, Visakhapatnam, H Purnima, said. Stating that this is a phenomenon experienced by “all banks” since November 2017, Purnima said, “We are unable to refill ATMs because people are not depositing in banks.”

M Harshavardhan, general manager at SBI’s Hyderabad head office, said that they have noticed customers are withdrawing huge amounts soon as salary is deposited, which is emptying the ATMs quickly. “Earlier, people would withdraw Rs 10,000 or Rs 15,000 in the first week, and withdraw more later during the month. Since November, we are seeing people withdrawing the entire salary, or more than they require (in the first instance available). It is partially due to the FRDI rumours and partially because people think cash may not be available later, so why take the risk.”

Officials pointed at the rumours that ATMs will remain dry for the next six months, and crowd psychology for the run on ATMs in the twin-states. “There is no need to worry — your money is safe in PSU (public sector) banks,” SBI’s Hyderabad circle chief general manager J Swaminathan said, assuring people. “No one has ever lost money in a PSU bank. The FRDI Bill is still a Bill (and not a law), and it does not take away depositors’ money. We appeal to people not to panic.”

Telangana’s Finance Minister Etela Rajender claimed that RBI is not sending enough cash to banks, which has caused the crisis. Telangana, he said, is bracing for a severe impact of this crisis since the state government will start distributing farm subsidy of Rs 4,000 per acre to each farmer from April 20, which amounts to nearly Rs 6,000 crore.

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“Farmers will be given cheques but they would want to cash them immediately, so banks will have to arrange for huge amounts of cash,” Rajender said. “Six banks have been shortlisted to distribute the cheques, and we have asked Union Finance Minister Arun Jaitley to instruct RBI to send cash to Telangana.”

His AP counterpart, Y Ramakrishnudu, also blamed the RBI for the crisis. Unless the apex bank sends adequate cash reserves to banks, he said, the crisis may go on for several months.

Some bank officials claimed that main or big branches of banks have also resorted to hoarding cash instead of distributing to smaller branches, fearing that cash reserve will dry up completely in the coming weeks.

An Andhra Bank regional manager from Vijayawada said that Rs 2,000 notes have almost disappeared from the banking system in the two states. Another bank officer said, “The situation has started easing a bit as RBI has sent over Rs 5,000 crore to AP and Telangana in the last two weeks.”

In December last year, Finance Minister Arun Jaitley clarified that the Bill protects depositors even if the amount is over Rs 1 lakh (deposits up to Rs 1 lakh is insured) because the rules will not be applied to PSU banks. Jaitley stated that a depositor’s money will not be used by the Resolution Corporation without her or his consent.

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