Slowdown in cash demand: Signs of economic revival

As economic activity picks up, cash demand is slowing, with people slowly moving back to the banking system for transactions.

For three consecutive fortnights, RBI data shows that currency with the public, cash withdrawn by the general public from banks and ATMs has slowed down in pace for three consecutive fortnights. From 2 per cent growth during the fortnight ended May 8, the growth slowed to 1.6 per cent during the May 22 fortnight to 1.3 per cent in June 05 fortnight.

Market indications are that consumers are relying less on cash and have gone back to digital mode of transactions in the unlock phase with banks seeing credit card spends going back to pre-covid levels after reporting 70-80 per cent fall in April, according to bankers ET have spoken to.


But the weekly growth in currency in circulation (CIC) released by the Reserve Bank in the banking system has remained more less steady, but has moderated compared to the pace of growth in April and early May. In the first six week since end March till May 08, RBI pumped in Rs 1.2 lakh crore cash. But in the subsequent five weeks it released a total of Rs 89,000 crore, RBI data shows.

Economists have also cautioned that cash would go back to banks when normalcy returns. "We, however, believe that going ahead significant CIC leakages may be capped owing to the normalization in economic activity" said Upasana Bharadwaj, India economist at Kotak Mahindra Bank in a report. The current CIC is at 12.98% of the FY2020 nominal GDP, higher than the pre-demonetisation level of 12 per cent of GDP.

Besides, a significant amount of cash demand in May was the money 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 in March, it is estimated that nearly Rs 50,000-Rs 60,000 crore has been cashed out by the beneficiary account holders. But that demand is not very apparent in June.