(Representative image)

MUMBAI: Close to Rs 50,000 crore moved out of banks as Indian accountholders withdrew wads of cash ahead of Diwali. According to data released by the RBI, currency in circulation shot up to Rs 20.2 lakh crore as on November 9 — an increase of Rs 49,418 crore in the Diwali week, the highest growth ever outside the demonetisation period.

The biggest weekly increase in currency in circulation was in the week ending January 13, 2017, which saw an additional Rs 52,786 crore flow out of banks as currency presses worked overtime to replace demonetised notes.

After demonetisation, the year-on-year growth in currency in circulation had been negative for 53 weeks. The currency in circulation recovered to pre-demonetisation level of nearly Rs 18 lakh crore in March this year. While there were indications that increase might plateau off, demand for banknotes has been strong this year with year-on-year growth being in excess of 20% for most of the year. However, withdrawals have been strong with accountholders pulling out over Rs 2.6 lakh crore from ATMs every month.

An increase in currency in circulation reduces the lendable resources of banks and pushes up interest rates. However, bankers say that historically currency returns to the banking system after festivals as individuals spend money and businesses deposit the cash back in banks.

The currency in circulation witnesses a sharp increase ahead of elections. In 2013, former governor Raghuram Rajan had said that “Around election time, cash with the public does normally increase... You can guess as to reasons why, we can also guess,” . He added: “You see some (spike) not just in the state going to elections, but also in the neighbouring states. There is something... We need to understand it better.”

