Following the 8 November announcement by the Modi government of demonetising the Rs 500 and Rs 1,000 notes, the banks were faced with an almost insurmountable challenge: How to manage the disbursal of new currency in a timely manner, in spite of the high demand.
Under such circumstances, the role played by automated teller machines (ATMs) in dispensing cash was hugely important and their success in disbursing the cash effectively was, to a great extent, going to decide the fate of the demonetisation scheme.
Following the note ban, long queues outside ATMs across the country became a common sight. In most cases, the ATMs ran out of cash almost instantaneously, leaving people hassled because of the sudden cash crunch. It was the biggest challenge ever faced by the banking sector in India.
Following Prime Minister Narendra Modi's announcement, the Reserve Bank of India (RBI) stated in a press release that all ATMs and other cash machines will remain shut on 9 November (and 10 November) to facilitate the re-calibration of the machines (as the new notes had different dimensions from what the machine accepted). It stated that when ready, they will be reactivated and that cash withdrawals from ATMs will be restricted to Rs 2,000 per day per card up to 18 November, with the limits being raised to Rs 4,000 per day per card from 19 November.
Facing impossible odds, it was left to the Public Sector Banks (PSBs) to plan and execute the re-calibration on a short time-frame, proving yet again that they are still the backbone of the economy in spite of all the criticism heaped upon them for the mounting bad loans and their mode of functioning.
According to a high ranking bank official, a meeting of all the bank chiefs was called upon on 8 November to deliberate upon how the re-calibration of the ATMs would be managed. The official claimed that most of the private sector banks expressed their inability to carry out the re-calibration work in such a short span of time – given the logistical constraints.
It was under these circumstances that India’s largest public sector bank, State Bank of India (SBI), rose to the occasion and took charge of the situation. With a host of private banks bowing out, it was the SBI that assured the government of effective management of its ATMs. The assurance was a big risk given the enormity of the task at hand.
According to RBI data, as on July 2016, out of a total of 1,03,282 onsite and 98,579 offsite ATMs in the country, SBI has 20,419 (onsite) and 29,496 (offsite) ATMs – close to a quarter of all ATMs. In this context, SBI's role in implementing the demonetisation scheme was of immense importance.
When the ATMs reopened on 11 November, 27,000 machines were up and running on the very first day. Out of these, 17,000 were replenished by SBI.
However, since these machines could hold only up to 2500 notes of Rs 100, it was hard to maintain the flow of currency.
“We could maintain continuous cash flow for the onsite ATMs and replenish it on regular intervals but for the offsite ATMs, it was a difficult proposition. So, we took various other steps," said a high ranking SBI official.
It was at this point that the role of banking correspondents in the rural and semi-urban areas, mobile banking, online banking and point of sale (PoS) cash disbursal became important.
SBI has PoS facility at 3,40,000 merchant locations in total, out of which 2,33,000 POS machines were re-calibrated so that the merchants could provide cash against a debit card swipe. Such merchants could provide cash up to Rs 2,000 in rural and semi-urban areas, while the limit was Rs 1000 for urban areas. These merchants conducted over 10,470 transactions worth Rs 40 lakh during the time the ATMs were closed in country.
SBI is also helping big corporates for salary and other services with its PoS machines. Around 470 vans are running to help such customers with 100-150 more vans to be added to the fleet soon.
On 14 November, RBI announced the constitution of a task force under the chairmanship of the RBI deputy governor SS Mundra, for the re-calibration and reactivation of ATMs
Stressing the fact that “ATMs play a vital role in meeting the currency requirements of the public and have become a major channel for disbursement of cash”, RBI said, “ Re-activation of ATMs extends the availability and disbursal of notes for the customers of banks at convenient time and location in judicious mix of higher and lower denominations.”
According to the RBI press release, re-calibration of ATMs involves multiple agencies – banks, ATM manufacturers, National Payment Corporation of India (NPCI), Switch Operators, etc, and multiple activities making it a complex operation requiring immense coordination among these players.
According to current data, 9,187 ATMs of SBI have been re-calibrated for the new Rs 2,000 note. There are currently 7,725 SBI ATMs dispensing Rs 100 notes as well as the new Rs 500 and Rs 2,000 notes.
“The re-calibration process is going on full flow. With more than 2,000 ATMs being currently re-calibrated (till Thursday, the number of functional ATMs touched 13000),” said the SBI official. SBI ATMs have conducted 2.46 crore transactions worth 4,551 crore rupees in the last one week.
In yet another move to ease the pressure on ATMs and bank branches, SBI has reached an understanding with public sector oil companies to provide nearly 3,043 petrol pumps with SBI PoS machines to start dispensing cash against debit card swipes. They will get Rs five per transaction. SBI will replenish the cash to the merchants.
Currently, the average number of transactions conducted through SBI debit cards has increased to 35 lakh daily as compared to 22 lakh before the announcement. It seems that the success or failure of the demonetisation move is currently hinged on the efforts of the public sector bank and its innovative methods of restoring some liquidity to the economy.