Explained: How withdrawal of Rs 2,000 notes will boost deposits, repayment of loans?
PTCNews Desk: The Reserve Bank of India may have chosen to withdraw Rs 2000 banknotes from circulation as part of its currency management strategy, but the decision is likely to have a positive impact on a number of macroeconomic parameters.
Rs 2000 denomination banknote was introduced in November 2016 to meet the currency requirement of the economy in an expeditious manner following the withdrawal of all Rs 500 and Rs 1000 banknotes in circulation at that time.
When banknotes in other denominations became available in adequate quantities, the objective of launching Rs 2000 banknotes was met. As a result, the printing of Rs 2000 banknotes was halted in 2018-19.
The RBI decided to withdraw the Rs 2000 denomination banknotes from circulation on May 19, 2023 but stated that they will continue to be legal currency. The RBI, on the other hand, has advised banks to stop issuing such banknotes immediately.
Earlier, RBI Governor Shaktikanta Das said that 50% of Rs 2,000 notes had already come back to the system after the May 19 announcement, and of those 85% were through bank deposits.
"Totally, so far about Rs 180,000 crore of Rs 2000 notes have come back. This is roughly about 50 per cent of the Rs 2000 notes which were in circulation on March 31," RBI Governor Das said. About 85 per cent of those notes, on a provisional basis, have come back as deposits in bank accounts, he added.
Based on the RBI governor's statements, the SBI Research in its latest Ecowrap report argued that deposits are likely to increase. The report was put out on Monday and has been authored by Group Chief Economic Adviser Soumya Kanti Ghosh.
"Though some amount would be withdrawn following the deposit, going by the current trends, CASA deposits are likely to increase (Rs 1.5 lakh crore) due to this measure," the SBI Research report stated.
The report cited the data from All Scheduled Commercial Bank (ASCB) and said that it shows that there has been an increase in total deposits of Rs 3.3 lakh crore during the fortnight ended Jun 2, 2023.
"The average increase in deposits during the same fortnight in the last two years was around Rs 1.5 lakh crore. Thus, taking that also into account, banks may have received additional deposits of around Rs 1.8 lakh crore during the fortnight this year. It seems Corporates, flush with in-hand liquidity, are parking the additional funds with Banks."
In addition to the Rs 2000 banknote deposits, some of the industries – Refinery, Oil and Gas, Power, and Chemicals – that reported improved cash and bank balances are believed to be more active in parking funds with banks, according to the research.
According to SBI Research, 30% of deposits (or Rs 92,000 crore) may be used for loan repayment, and credit growth remains strong despite repayments being frontloaded.
Consumption demand may be frontloaded by Rs 55,000 crore, according to estimates.
"With the banknote remaining a legal tender, unlike demonetization, consumption could see a boost. Though RBI asked customers to deposit or exchange the Rs 2000 notes, but it is expected that high-value amounts could move to high-value spends such as gold/jewellery, high-end consumer durables like AC, mobile phones etc, and real estate," the report further argued.
Cash value transactions at petrol stations, cash on delivery purchases, temple donations, and numerous other purchases are also expected to increase.
The total value of these Rs 2000 banknotes in circulation has decreased from Rs 6.73 lakh crore on March 31, 2018 (37.3 percent of Notes in Circulation) to Rs 3.62 lakh crore on March 31, 2023 (10.8% of Notes in Circulation). This denomination was likewise found to be infrequently used for transactions.
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- ANI
