Money is trickling into the banks of Bihar – but is not being distributed evenly

A month after Prime Minister Narendra Modi announced the scrapping of Rs 500 and Rs 1,000 notes on November 8, cash availability is starkly uneven across Bihar.

In relatively affluent parts of the capital city of Patna, the long queues outside ATMs seen in the first week of notebandi, when the government invalidated 86% of the currency in circulation, creating a massive cash crunch, are history. In poorer parts of the city, however, one can still see 50-odd people lined up outside ATMs at most times. Travel outside the capital and this pattern repeats itself.

In bigger towns, residents and bank managers said the cash flow has improved. In North Bihar’s Darbhanga, Ramakant Mishra, manager of a Punjab National Bank branch in Qila Ghat, brings out cheques encashed by his customers on November 30, the day this reporter visited his branch. Most cheques ranged between Rs 10,000 to Rs 24,000.

The story in Gaya district is similar. Residents of Gaya city, a tourist hub, said cash availability was not a problem. At Wazirganj, about 20 kilometres Northeast of Gaya, business is humming along at a Punjab National Bank branch. Its manager, who did not want to be identified, said daily cash deposits in the branch have returned to their usual level of Rs 30 lakh.

In the days after demonetisation, they had climbed to Rs 70 lakh-Rs 80 lakh. Our clients, he said, are able to withdraw Rs 24,000 a week, the limit set by the Reserve Bank of India for banks. Earlier, this bank, like several others in the country, did not have enough cash to dispense that amount to every customer who needed it.

However, venture deeper into the Gaya district and you will find that cash is just as hard to come by as it was in the days immediately after the demonetisation was announced.

The case of gramin banks

Deep inside Wazirganj stands a branch of the Madhya Bihar Gramin Bank. Its manager, NK Mishra, said they were only able to give people Rs 2,000-Rs 4,000 per week. About 10 days ago, this reporter had seen a similar situation at the Thawe Mandir branch of North Bihar Gramin Bank in Gopalganj district – about 330 kilometres north of Gaya, which was letting customers withdraw no more than Rs 2,000 a week.

So why does Punjab National Bank have cash while regional rural financial institutions such as gramin banks do not? There seem to be two reasons for this.

In Gaya, the Punjab National Bank maintains the local currency chest – cash reserves held by banks in larger towns, on behalf of the Reserve Bank of India. Right now, with cash in circulation running low, banks seem to be focusing on bigger population centres. Ramakant Mishra, the Punjab National Bank branch manager at Darbhanga in North Bihar, agreed. “Things will return to normal in the bigger centres in 5-10 days,” he said. “It will be a bigger problem in rural areas. There are fewer branches there. And it takes longer to top them up with cash.”

The second reason for uneven distribution of currency notes is that under India’s banking regulations, each rural bank is attached to a nationalised bank which, among other things, supplies cash to them. Punjab National Bank, for instance, is the “sponsor bank” for Madhya Bihar Gramin Bank. Similarly, Central Bank of India is the sponsor bank for Uttar Bihar Gramin Bank.

Over the last month, given the cash crunch, nationalised banks have not been releasing enough money to Gramin Banks, bank officials said. Take the example of the Wazirganj branch. Its daily need, its manager Mishra said, is between Rs 4 lakh-Rs 5 lakh. “What we are getting is Rs 2 lakh.” A lot of these notes, he added, were badly damaged.

The branch manager at Thawe, which gets money from the Central Bank of India, had a similar complaint. “We need about Rs 30 lakh-Rs 40 lakh a month,” he said. “What we have received so far is Rs 6 lakh, Rs 3 lakh and Rs 9 lakh – so Rs 18 lakh.”

In November end, when this reporter visited the Thawe Mandir branch, salaries for local teachers and anganwadi workers had been credited to their accounts. But, said the manager, “There is no preparation from our feeder bank for payday. We have not received any additional cash.”

This also explains why people in big towns said things were improving while those in the hinterland did not. On the day this reporter visited Wazirganj, Mishra was updating accounts before passing withdrawal slips to his cashier. It was a tricky job and some of his customers were agitated. Others were interceding on behalf of other customers who had to pay farm workers or had a wedding coming up. And Mishra was patiently apologising for his inability to pay more. “Agar koi customer naya note daalega to kaam kar dengey warna shama karey.” – If any customer deposits new notes, I will take care of your needs. Otherwise, you will have to forgive me.

Most of his 13,000 customers, he said, are poorer than those who have accounts in nationalised banks – such as old age pensioners and farmers. Said Mishra, “Rs 2,000 dene mein sharam aa rahi hain.” It is embarrassing to give them no more than Rs 2,000.

Mishra said he could not help but feel that “gramin banks ke saath sautela vyavhaar kiya jaa raha hain” – gramin banks are getting a step-motherly treatment.

What about banking correspondents?

In the hinterlands of Bihar, banking correspondents, who are authorised to collect small deposits and extend credit on behalf of the banks, are facing a cash crunch as well. Beyond Wazirganj is Pipra, a village where State Bank of India has set up a Customer Service Point. There, villagers are sitting outside a small shop with a cash counter inside. Inside, Satyendra Kumar, the local banking correspondent, is collecting thumb impressions, handing people money, and updating their bank accounts. With 5,000 customers, he said, his centre usually disburses Rs 5 lakh every day. “What we are getting is Rs 50,000.”

As a result, there is a perennial crowd outside his centre. Every day, he gets about 300-400 customers looking to make withdrawals. Given that he is unable to pay more than a few hundred rupees to each, they end up coming back in a few days.

As he made his payments on Monday, Kumar said about Rs 14,50,000 had just been released by the state government to his centre for pensions to widows. Bihar, he said, had not made these monthly payments of Rs 400 for the last seven months. What he had now received was the cumulative amount due – Rs 2,800 per beneficiary. But there is no cash to make those payments.

In December, he said, the state government will also release cash to buy new cycles and uniforms for schoolchildren . “The government pays Rs 600 to each student for uniforms,” he said. “Where will we get the cash to make that payment?”

This is a familiar narrative on Bihar, one whose ripples spread far and wide. As this reporter saw in Bettiah, banks’ inability to pay more than Rs 1,000 in a week caused cauliflower prices to crash to Rs 1 per kilo in the local mandi. One wonders what invisible disruptions are being caused right now.