MUMBAI (Reuters) - India's central bank will review its decision asking banks to deposit their extra cash with it once the government has issued an adequate amount of market stabilization scheme bonds to soak up liquidity, Governor Urjit Patel was quoted as telling the Press Trust of India on Sunday.
On Saturday the Reserve Bank of India unexpectedly ordered banks to boost cash deposits with the RBI, in a bid to absorb excess liquidity generated by a government ban on larger notes. The move will drain over 3.24 trillion rupees ($47.29 billion) from the banks, according to Reuters estimates.
The government has budgeted 200 billion rupees for a market stabilization scheme in the year ending next March which analysts say will need to be increased substantially to drain surplus cash flowing into banks due to the note replacement scheme announced on Nov 8.
Patel told the news agency that the RBI was monitoring the situation arising from the sudden withdrawal of 500-rupee and 1,000-rupee notes on a daily basis, admitting that new notes were hard to come by in rural areas, according to the PTI report seen on the Mint newspaper's website.
"While the RBI has a significant stock of government securities available we felt that if the increase in deposits continues we may fall short, hence the decision," Patel was quoted as saying. "Once the government issues an adequate quantum of MSS bonds, which they have promised to, we will immediately review," he said.
In his first interview since taking over as the head of the central bank in September, Patel said "complete secrecy" was needed to effect the withdrawal of higher-value notes, leaving banks less time to be prepared.
Banks and cash machines have seen long queues and chaos as people scramble to replace the old currency notes.
"The bankers are saying the situation is getting better and in the metros things are stabilizing, but the remote locations are still feeling some pain," he was quoted as saying.
"Both RBI and government have been getting the printing presses to work at capacity to get the new notes available to meet demand," he told PTI.
Echoing Prime Minister Narendra Modi's comments on lowering cash usage, Patel urged people to start using cash substitutes such as debit cards and digital wallets that would help India "leapfrog into a less-cash economy", PTI reported.
In a speech earlier on Sunday Modi urged a move towards a cashless society, calling on small traders and daily wage earners to embrace digital payment channels.
($1=68.5085 Indian rupees)
(Reporting by Devidutta Tripathy; Editing by Euan Rocha, Greg Mahlich)