Demonetisation, ATM chaos: Complacency or lack of understanding by govt and RBI?

The role of the ATMs must come under scanner in the logistical nightmare that demonetisation has ushered in. With almost 86 percent of the total currency value getting wiped away through decommissioning of the 500 and 1000 banknotes, the two lakh automated teller machines were expected to play a vital part in redistributing liquidity back into the system. That hasn't happened.

So far, banks and post offices have been forced to shoulder the entire burden with nearly zero help from machines. Banking officials have been pulling incredible 15-hour shifts to accept and disburse cash through 1,34,000 branches and the entire post office network have been pressed into service. But as more and more liquidity gets sucked out of the system and — as is natural during any crisis — people hold on to the precious few lower denomination notes they are left with, the pressure on the already creaking banking network is beyond comprehension.

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The ATMs — 60 percent of which are non-functional while the rest are functioning sub-optimally —must be pressed into service as soon as possible but we are given to understand that it might take up to three more weeks for the machines to function normally. The reason — as Arun Jaitley told us yesterday — is that these are not recalibrated to receive the revised and redesigned bank notes.

Representational image. Reuters

Currently, most the functional ATMs are unable to dispense the new Rs 500 and Rs 2000 banknotes and there aren't enough Rs 100 notes to cater to citizens. The queues are getting longer and the machines are fast running out of cash.

"There are technological limitations. It would take two-three weeks to recalibrate the nearly 2 lakh ATMs in the country," the Union finance minister said at a news conference on Saturday.

"It is a long-drawn process," Jaitley said. "Since new notes are of different sizes, it is taking time to recalibrate the ATMs. That is why mostly Rs 100 notes being dispensed from ATMS right now, recalibration will take some time," he said.

Which raised the question why wasn't this before? The RBI had been printing money for the last six months to replace the invalid currency. Why weren't the machines recalibrated earlier? Jaitley said it was due to a secrecy issue.

"ATMs could not have been calibrated (before the announcement) because of secrecy issue. Thousands of people are involved in the recalibration exercise (and) secrecy could not have been maintained. Recalibration takes at least two-three weeks… It would have given the whole game away,” he said.

The RBI’s 4000-odd currency chests across the country have sufficient cash, which is being transported to banks and post offices, Jaitley said.

The finance minister's explanation raises several questions. If the over two lakh ATMs need to be individually recalibrated by an engineer, a process that takes roughly 3-4 hours of time, it cannot be done before the time frame as stipulated by Jaitley even if a large number of engineers are pressed into service. In that case, did the RBI mislead the Prime Minister when he delivered his demonetisation address on 8 November?

"On 9th November and in some places on 10 November also, ATMs will not work. In the first few days, there will be a limit of two thousand rupees per day per card," Modi had said during his speech. The understanding was that from 11 November, the ATMs would disburse the new notes but that clearly isn't the case.

Jaitley suggested that recalibration couldn't have been done earlier because any whiff of such an operation would have alerted the crooks who would have quickly turned the liquidity into assets. Did the government and RBI undermine the enormity of the problem? It defies explanation that central bank honchos — who must have given inputs to the government — failed to anticipate that only 14 percent of the currency (the lower denomination notes) cannot remain transitory currency for long. With ATMs unable to dispense higher value currency, it was misleading to say that the machines would be functional from Friday.

On Day Zero, the government should have come out with a clear message that due to recalibration issues, all ATMs would remain closed until further notice and cash could be deposited and exchanged only at bank branches and post offices. That would have ensured a clarity in the process and people would have been mentally prepared. The time to recalibrate the machines would have also reduced.

Since the functioning ATMs can only dispense Rs 100 notes, each transaction takes away 20 notes for a maximum ceiling of Rs 2000. This is fast drying up the machines.

As The Times of India report points out the vendors are not equipped to re-fill the ATMs at such a high frequency. "We typically do filling of 30 ATMs per van in a day. Even if we stretch, we cannot do multiple rounds to the same set of ATMs even twice a day," said a manager at one of the ATM vendors, according to the newspaper.

Were these operational details properly though through? The chaos suggests either complacency within the government and the RBI or a lack of understanding of the enormity of the operation.