The secrecy of the government’s intention to demonetise the high-value Rs 500 and Rs 1,000 currency notes overnight on Tuesday meant that most banking officials were not aware of the plan until it was announced.

This begs the question: are banks equipped to deal with the crowds who will descend upon their branches on Thursday, when banks are expected to take in old notes and replace them with new ones?

According to the plan announced by the government, those holding currency notes that have been demonetised will be able to exchange them at banks and post offices starting Thursday. However, there is a cap. People can exchange up to Rs 4,000 for new notes at banks and post offices. Banks will also accept sums above that but the amount will be credited into the depositor’s account. Similarly, the cash withdrawal limit at Automated Teller Machines will be Rs 2,000 per day per debit card. This limit at both banks and ATMs will be in force till November 24, and will slowly be raised thereafter. The exchange scheme ends on December 30.

The restrictions betray the ground situation. Banking officials Scroll.in spoke to said that they were not aware of the plan to scrap old high-value notes till Prime Minister Narendra Modi made the announcement on Tuesday night. Banks and ATMS were shut on Wednesday to allow them to restock with the new notes but officials said that they were not sure if their branches had adequate supplies of accepted denominations to meet the demand.

Logistical nightmare

The banking officials said that demonetisation had brought with it a logistical nightmare that branches did not anticipate.

A senior manager at a nationalised bank in New Delhi said on condition of anonymity that the bank’s branches had not been supplied with Rs 100 notes for the past week, adding that first bundles arrived only on Wednesday afternoon. Some of them say that they had received consignments of the new Rs 2,000 notes in the past few days, but very few of the new, high-security Rs 500 notes have reached branches.

"But the public will now want only lower denominations," the official said, adding that the demonetisation has created fears about higher denomination notes.

CH Venkatachalam, general secretary of the All India Bank Employees Association, also pointed out that the transfer of cash from Reserve Bank of India chests was not so simple.

He said that the central bank has authorised only certain transporters to move cash in order to ensure that it is done securely. Every such movement has to be entered into a sophisticated online system, which the RBI tracks closely. However, this automatically restricts the ability of banks to swiftly move cash from their reserves to branches to meet the inevitable spike in the demand for cash expected over the next few days and weeks.

Though State Bank of India chairperson Arundhati Bhattacharya said on Tuesday that the government had "given enough exemptions" to ensure that people's urgent cash needs are met, it is not clear whether these include exemptions on rules governing the transport of cash.

According to the RBI’s Annual Report for the financial year 2015-’16, the old Rs 500 and Rs 1,000 denominations account for 86% of all banknotes in circulation and 12% of India’s Gross Domestic Product. This puts into perspective the amount of cash that people will possibly want to exchange over the next few weeks.

Urban bias?

On Thursday, as banks open, they will face twin challenges: to tackle the huge rush expected at their branches, and to stock up ATMs across their network. "The first few days are bound to be chaotic," the official said.

As on March 2016, there were 132,587 bank branches in India of which 49,902 were in rural areas.

Though officials are aware that rural areas are more dependent on cash than urban ones, they say the focus will be to first stock up branches in big cities.

D Thomas Franco, president of the All India State Bank Officers' Federation, said branches in remote rural areas would be the worst hit by the government's sudden announcement.

He said public sector banks face close to a 10% manpower shortage due to vacancies. “Though branches have been asked to work two hours extra, employees will find it difficult to meet the demand,” he said. Apart from dealing with frazzled customers, the officials will have the work of entering in the books every exchange made.