Currency in circulation touches 52-week high as demand surges

Agencies

Cash used as a payment mode in e-commerce transactions stands at 90% in tier-4 cities as against 50% for tier-1 cities, which also has led to a huge surge in cash volumes.

Synopsis

The currency in circulation touched a 52-week high at ₹30.5 lakh crore as of February 11, a year-on-year rise of 8.2% and is over 3% or nearly ₹1 lakh crore more than the ₹29.6 lakh crore seen on August 4, 2021. It had risen to 9.2% YoY during the...

By Saloni Shukla & Gayatri Nayak, ET Bureau

Last Updated: Feb 16, 2022, 06:38 AM IST

Mumbai: Even as digital modes of banking continue to gain ground, cash very much remains a popular mode of transaction and is accelerating in several states that are heading 

The currency in circulation touched a 52-week high at ₹30.5 lakh crore as of February 11, a year-on-year rise of 8.2% and is over 3% or nearly ₹1 lakh crore more than the ₹29.6 lakh crore seen on August 4, 2021. It had risen to 9.2% YoY during the week ending November 5, 2021, which coincided with the Diwali festivities.

This has led to a two-three fold rise in clients for cash management solutions (CMS) companies and business is surging due to the demand for cash.

"It is a trend that currency in circulation has been rising," said Madan Sabnavis, chief economist, Bank of Baroda. "This could be partly due to elections in a few states. But people have also gone back to the precautionary holding of cash on concerns over the rise in omicron infection
Payments services firm Fino facilitated CMS transactions worth ₹11,828 crore in FY21 and has already clocked over ₹15,000 crore during the nine months of FY22, an increase of 127% by value. The company's client base has also risen over three-fold to 130 from 39 in FY20.

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"The usage of cash is growing at a staggering pace, especially in rural markets, we have managed to more than double our business and client base in the pandemic period," said Rishi Gupta, MD, Fino Payments Bank. "Demand for cash presents a huge opportunity to digitise it and cater to the needs of the local economy."

A report by the Reserve Bank of India said despite the rise in digital payments, cash in circulation is expected to grow approximately 10% to touch ₹41.5 lakh crore by FY25.

As a percentage of GDP, the currency in circulation is estimated at 13.5% as of February 4, according to estimates by Kotak Mahindra Bank. At the current levels currency in circulation is still higher than the pre-lockdown levels of 12.03% of GDP as of March 2020, though it touched its lifetime high of 14.5% March 2021, on a low base as the economy contracted by 7.25%.