Banks operating in the crowded lanes of Daryaganj and Chandni Chowk in old Delhi witnessed large withdrawals on Tuesday, a day after Finance Minister P Chidambaram announced there would be a 0.1 per cent tax on all current account withdrawals of over Rs 25,000 by individuals and of over Rs 100,000 by companies from June 1.
"For the first time in my career I had to order Rs 4 crore (Rs 40 million) additional cash from the other cash chest as the number of cash withdrawals went up considerably," said the manager of a bank in Daryaganj.
Bank transactions are carried out largely in cash in the area. Bankers said ever since Chidambaram announced the withdrawal tax on April 28, people had been drawing money in large sums from their accounts.
According to them, people were not just worried about the 0.1 per cent tax, but were also not sure of how the tax authorities might use the bank data.
But this could be an exception. Banks in other cities like Kolkata, Hyderabad and Chennai did not report any hike in withdrawals by individuals and companies.
The introduction of electronic funds transfer, real-time gross settlement and wide use of plastic has reduced the dependence on cash.
At ICICI Bank, for instance, the number of such transactions went up by 96 per cent in 2004-05 over 2003-04. In value terms, the rise is 200 per cent.
"The government's decision to impose a tax on high-value cash withdrawals will trigger a further rise in electronic fund transfers," said an ICICI Bank executive.
Small companies that hand out salaries in cash are sure to be impacted by the tax. Bankers expect such companies also to move to electronic funds transfer.Meanwhile, co-operative banks in Ahmedabad are gearing up for more business once the tax comes into play. The reason is simple -- the new tax applies to only scheduled banks and not more than a dozen of the 326 co-operative banks operating in the state have that status. These banks are expecting to wean away deposits from scheduled banks.