“Consumers seem to be cashing out of automated teller machines (ATMs) and logging in at point-of-sale (POS) terminals more frequently. Even as the network expands, the average number of transactions at ATMs is on a downward slope. The use of debit cards at POS terminals, by contrast, is growing at a rapid pace… The fact that people have started using their debit cards for more than just withdrawing money suggests the idea of cashless transaction is gaining momentum.”
If you think that the lines quoted above offers a description of the situation in the days and months after the dreaded demonetisation, you are mistaken. It was actually the conclusion of my analysis of Reserve Bank of India data in September 2014, a good two years before demonetisation.
What the research showed then was that “the average number of monthly transactions at an ATM has fallen 26 percent from 4,693 in May 2012 to 3,454” in May 2014. What we had noticed, also corroborated by a number of senior bankers we spoke to, was a secular decline in average transactions at ATMs (a good proxy for cash demand in the system) and a pick up, albeit gradual, in transactions at POS terminals (a good proxy for online transactions).
Renewed Love For ATMs Post-Demonetisation
On the eve of demonetisation’s second anniversary, I decided to revisit the data.
To my astonishment, I found a trend reversal, contrary to what was promised to us accompanying the grand announcement by the prime minister when he rendered nearly 86 percent of cash in the system illegal on 8 November 2016.
People’s appetite for ‘dirty’ cash (erroneously projected as black money) has gone up. What had enabled the gradual transition to online transaction in the pre-demonetisation days – thanks to the environment provided by the banking regulator – seems to be falling apart post the coercive note ban.
Let us recall that the Reserve Bank of India had mandated a two-tier security system while transacting at POS terminals sometime in 2013. That was seen as a measure aimed at mitigating the risk of fraudulent transactions at POS terminals. Bankers had told me that that was the trigger that helped people cash out of ATMs and log onto online transaction mode.
However, after the note ban that forced people to go for the online mode, the people’s verdict seems to be a resounding ‘no’. And here is the conclusive data to prove it:
The data clearly shows that the trend of secular fall in withdrawals at ATMs has reversed.
In the year following demonetisation, there was a marginal fall partly because of non-availability of cash in ATMs in May 2017. That was the time when ATMs across the country were getting recalibrated and cash supply was limited.
However, when the situation normalised, the frequency of visits to ATMs to withdraw cash increased manifold. In fact, the growth in the current year has been a whopping 13 percent. It seems like people are telling the government: “You want us to use less cash, we will do the opposite and withdraw more.”
New Trend Of Household Savings In Cash
This ATM withdrawal data is in line with the RBI’s earlier report which noted that the amount of household savings in cash is almost equal to the amount deposited in banks, and that the proportion of cash in total household savings is more than twice the average of the last five years.
According to a Mint report, “currency holding of households in 2017-18, as a percentage of GNDI, was the highest since 2011-12.”
To get a sense of the impact this will have, please read a paragraph of the RBI report. It says that household savings constitute the most important source of investment in economy. If the savings are not reaching the banking system and are kept instead as cash, this means that the investment source is drying up. This, in turn, will lead to stunted economic growth and a drastic fall in job opportunities.
People’s Verdict On Demonetisation Out
For all those waiting for the people’s verdict on demonetisation, the set of data presented here should be seen as such. Not only have the people rejected the decision, they have in fact gone ahead and behaved contrary to the stated objectives of the move.
And let us remind our policymakers yet again, on the second anniversary of demonetisation, that while we, the people, are quite inclined to embrace changes through persuasion, we are loathe to mend our ways when faced with coercive action.
Do we need more proof to say so emphatically?
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)