On one hand, inflation has increased in the country due to Gulf War, while on the other hand people are running to withdraw cash from banks. According to reports, ₹61,000 crore was withdrawn from Indian banks in the first 15 days of April. In India, where 46% of transactions are digital, where even vegetable sellers take payments through QR codes, why have people suddenly started withdrawing cash from banks? If we look at RBI data, today there is ₹42.3 lakh crore in circulation in India, which is the biggest jump after demonetization.
Why are people withdrawing cash in India?
Almost nine years after demonetisation in 2016, for the first time in the Indian economy people are withdrawing cash from their bank accounts. Demand for cash has never increased so fast before. Now the question arises: Why has this increase occurred? Have people lost trust in banks? Are people not trusting digital payments, or is the fear of black economy behind this cash flow? It is important to understand the reasons behind this increase in cash withdrawals and the risks associated with it.
Why do people prefer to keep cash with them instead of keeping it in banks?
According to Reserve Bank data, the currency in circulation has increased by 11.8% compared to last year. In April 2026, cash with people crossed the figure of ₹39 lakh crore. ₹61,000 crore were withdrawn in the first 15 days of April. An SBI report states that this trend of cash withdrawal started in October 2025 and broke all records in April 2026. Three biggest reasons for withdrawing cash have emerged: fear of tax, election period and the third biggest reason is precautionary demand.
Tax scare: A few months ago, the Karnataka government sent GST notices to 6,000 traders. These traders had not registered for GST. The government tracked their data using UPI transactions and sent them notices, leading to a boycott of UPI in several southern states, including Karnataka and Mysore. Businesses have started transacting in cash.
Election Connection: Demand for cash has increased due to assembly elections in five states. Demand for cash increases during elections. Despite the strictness of the Election Commission, cash was seized at many places.
Decrease in trust in the banking system: People’s trust in the banking system is decreasing. Interest rates on fixed deposits have already been reduced, so people are avoiding saving in banks. Cautious demand also contributed to the increase in cash. Due to changes in banking rules, increasing risks and rising inflation, middle class families are preferring to keep cash at home instead of deposits. Due to rising prices of gold and silver, people have increased their investment in the system to book profits. People are taking cash by selling gold, but instead of depositing it in banks, they are keeping it at home.
Banks’ balance sheets are deteriorating
If we look at cash withdrawal, the credit-deposit ratio in big banks like HDFC and ICICI Bank is up to 80%. This means that banks are giving more loans, but fixed deposits are decreasing. The decline in bank deposits indicates a big risk. Liquidity stress increases due to reduced cash flow in banks. Due to decrease in deposits, banks will be short of cash to give loans. This means that loans will become more expensive. Interest rates will increase. Your home loan and car loan will become more expensive. If deposits in banks reduce, then big companies will face difficulty in getting funds, which may affect employment and development of the country.
Is the economy stuck in the trap of withdrawing cash?
Withdrawal of cash can weaken the country’s economy. Loans will become more expensive due to increase in cash withdrawals from banks and decrease in deposits. Companies will face shortage of funds, which will affect employment and the country’s economy. Despite 10 years of Digital India, the rural economy still deals in cash. This increase in cash shows economic weakness, fear of taxation, black money in electoral politics and the weaknesses of the banking system. This increasing cash in the market is pushing the country’s economy ten years behind the point where it was trying to recover after demonetization.
