Unusual spurt in demand for currency led to many ATMs and banks running out of cash in Uttar Pradesh, Madhya Pradesh, poll-bound Karnataka and some other states even as the government and the RBI assured the public that there was no currency shortage.
Suspected hoarding of Rs 2,000 notes was cited as a reason by the government for the current situation. On the other hand, the RBI said logistics and recalibration issues were limiting replenishments of ATMs.
Amid reports of currency shortages, the government said printing of Rs 500 denomination notes would be increased five-fold and notes worth Rs 70,000-75,000 crore would be printed in a month while the RBI has ramped up printing at its notes presses.
Economic Affairs Secretary S C Garg said the printing of Rs 2,000 notes have been halted for the past few days as there is an "over supply", adding that currencies of lower denominations are also in over supply.
There is around Rs 7 lakh crore worth of Rs 2,000 notes in circulation.
A statement from the Finance Ministry confirmed reports of cash shortages and some ATMs running dry or becoming non-functional in some parts of the country.
"There has been unusual spurt in currency demand in the country in last three months," it said.
While currency supply increased by Rs 45,000 crore in the first 13 days of April, "unusual spurt in demand" was seen more in some parts of Andhra Pradesh, Telangana, Karnataka, Madhya Pradesh and Bihar, the statement said.
Seeking to assure the public, Finance Minister Arun Jaitley said he has reviewed the situation and the government would fix the problem quickly.
"Overall there is more than adequate currency in circulation and also available with the Banks. The temporary shortage caused by 'sudden and unusual increase' (in demand) in some areas is being tackled quickly," Jaitley , who has been away from office since April 2 due to a kidney ailment, said in a tweet.
Government officials attributed the cash crunch to crop procurement and hoarding of high denomination currency ahead of elections in Karnataka.
The currency problem originated in the southern states and may have been fuelled by rumours that money in banks is not safe due to a certain provision in the proposed Financial Resolution and Deposit Insurance (FRDI) Bill, 2017, officials said.
Cities and towns across Andhra Pradesh, Telangana, Karnataka, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan and Uttar Pradesh were among those impacted by the cash crunch.
Some ATMs downed shutters with 'No cash' and 'Out of service' messages, prompting the government to move currency from surplus regions. Some ATMs in national capital too went out of cash.
Minister of State for Finance Shiv Pratap Shukla said the government has formed a committee to address the problem of currency shortage in certain states and the issue would be resolved in next 2-3 days.
A Finance Ministry official said that 76 per cent of the 2.2 lakh ATMs across the country were functioning normally on April 16.
Political leaders, including Rahul Gandhi of Congress and West Bengal Chief Minister Mamata Banerjee trained guns at the Centre saying ATMs running dry was a reminder of demonetisation days.
In its statement, the RBI said there was no shortage of currency in the system though it has decided to ramp printing at all its four currency prices.
Shortage "may be felt" in some pockets largely due to logistical issues of replenishing ATMs frequently and the recalibration of ATMs being still underway, it added.
To deal with the situation, Garg said the RBI would increase five-fold printing of Rs 500 notes to about Rs 2,500 crore a day to deal with the cash shortage.
"So, in a month, we will be printing about Rs 70,000-Rs 75,000 crore. This should give you assurance that we are geared up to meet the rising demand," he said.
Garg noted that there is also a perception that there may be shortage of currency in the future. So people have started withdrawing and it has contributed to the crisis, he added.
"We keep adequate stock of currency notes, which is one-sixth of the currency in circulation," he said.
According to him, currency in stock is about Rs 2 lakh crore and these reserves are adequate to meet any unusual spurt in demand.
He assured that there was no reason for anyone to fear or any apprehension that either private sector or public sector banks are in danger. "Our banking is totally safe and people should not have in any apprehension in keeping deposits," he said.
RBI report shows that the currency in circulation in the country has reached the pre-demonetisation level of about Rs 17 lakh crore.
The government said there has been adequate supply of currency notes to meet entire demand. "The government would also like to assure that it would be supplying adequate currency notes to meet even higher levels of demand if such demand were to continue in the coming days/months".
SBI Chairman Rajnish Kumar said it would not be correct to state that there is a currency shortage in the country. There has been an "imbalance" due to the crop procurement season, when demand for currency goes up.
(With PTI inputs)