How are Banks going to solve the mighty challenge?
The currency demonetization will go down as a revolutionary step in the books of Indian economy. But this revolution will come at a huge cost and pain to banks — they need to make the logistics work amidst the most challenging cash management exercises of all times.
The previous two attempts at demonetization (1946 & 1978) only had 15% of currency notes being exchanged but this time the estimates are much higher due to 86% of currency and 24% of total notes being in the form of INR 500 & INR 1000 note denominations (as per RBI reports). The biggest responsibility for the banks right now is to make the logistics work amidst the most challenging cash management exercises of all time. This comes with obvious challenges on ground for Banks.
Challenge 1: Cash replenishment
- The government expects that it will take 2–3 weeks to replace the currency being pulled out of circulation with new currency.
- ATMs with Rs 100 and Rs 50 notes are dispensing cash currently but replenishing these ATMs with the currency multiple times in a day, will be mammoth task.
- As per cash management companies, approximately Rs 3–5 crore is transported in one trip. Even with maximum capacity, it would take 2.8 lakh trips to stock ATMs with an amount equivalent to the Rs 14.1 lakh crore that is being withdrawn.
- Due to smaller denomination notes being transferred, the number of physical trips needed could be much higher.
- Banks will also start stocking ATMs with new Rs 500 and Rs 2000 notes but the availability of these higher denomination notes will take time to pick up.
Challenge 2: Cash Collection
- The most immediate task at hand is to collect and remove the Rs 500 and Rs 1000 currency notes from the system.
- The total value of currency in circulation is Rs 16.4 lakh crore, of which over 86% i.e Rs 14.1 lakh crore is in the form of Rs 500 and Rs 1000 notes. In terms of volume, these two denominations account for about 24% of the notes in circulation. (source RBI annual report).
- As per bank statements, this could take 3–4 months for the collection. The rural sectors will be most affected by this, as reaching them would be a challenge.
Challenge 3: Scarcity of shared resources
- There are 2.2 lakh ATM’s in India and cash replenishment guarded vehicles are a shared resource by all banks.
- The test will be to ensure equitable and optimized use of 8,800 cash vans to replenish 2.2lakh ATM’s multiple times.
- Consistency in standard operating procedures and processes across all banks for ATMs is critical for best use of resources.
In short, optimization of resources with the least time and distance on road, 100% cash van capacity utilization, considering real time traffic conditions will drive the entire step to success. Technology can play a huge role in making the entire process streamlined and efficient. An intelligent logistics technology platform can add great value to automate and also optimize the decision making for optimum use of supply chain and deliver the tasks in the lowest possible time.
Locus, a logistics automation platform, is in prime position to offer the range of solutions discussed above. Our proprietary 3D packing system combined with our optimum routing engine, are perfect for moving such high currency volumes across all parts of the country. Combined with our ease of tracking and visualisation of key metrics, all stakeholders can be lest assured of an efficient and smooth transition to the new monetary setup.
Locus aims to support this initiative and help banks manage their logistics amidst challenges that lie ahead of them.
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This post was authored by: Ayesha Zafar