In my country, we have a similar system like in India (in fact, we copied it from them) and I've experienced this situation: a government-run gas company mistakenly claimed I owe them money, and the bank withdrew the claimed amount without due process, because they have some sort of mutual agreement that all their claims are legit unless I bring the issue to court. I won and they had to return the money.
The government can't just take away all your cash on a whim without any notice. That's why, I guess, some people prefer cash. If you want to use cash, you want local shops to accept cash. Personally, I'm OK with being cashless.
Funnily enough, India did something similar to that - they overnight made 500 & 1000 rupee bills (the two highest value denomination - approx ~8 & 16USD at the time) illegitimate. There were ways to convert those to the new bills, slowly, and capped at a certain amount iirc.
The goal was to "make illegal money" (i.e. tax evasion / sourced from corruption) useless.
