Withdrawal Of Rs 2,000 Notes Likely To Boost Bank Deposits, Loan Repayments: SBI

The RBI decided to withdraw the highest denomination note of Rs 2,000 from circulation as a part of currency management

RBI Governor Shaktikanta Das on June 8 said that around 1.8 lakh crore of Rs 2000 notes have already come back in to the system.

Source : Getty

Withdrawal of Rs 2000 currency notes will boost bank deposits, repayment of loans, and have a positive impact on consumption and Reserve Bank of India's retail CBDC (central bank digital currency), a study by SBI showed on Monday. The banking regulator decided to withdraw the highest denomination note of Rs 2,000 from circulation as a part of currency management. In value term, the share of 2,000 denomination notes (Rs 3.62 lakh crore) was at 10.8 per cent as on March 23, according to news reports.

RBI Governor Shaktikanta Das on June 8 said that around 1.8 lakh crore of Rs 2000 notes have already come back in to the system. Of this, around 85 per cent or Rs 1.5 lakh crore have come as deposits and the rest are exchanged for other smaller denominations.

According to SBI study, "Even as Rs 1.5 lakh crore of Rs 2000-rupee notes has been deposited at the banks. This implies that the amount spent / exchanged by people over the counter is Rs 60,000 crore (Rs 1.5 lakh crore net of Rs 90,000 crore decline in currency in circulation Rs 60,000 crore) ...this could also result in a bank deposit boost, repayment of loans boost, consumption boost, RBI retail CBDC boost and a possible GDP boost.”

The 'precision strike' by the central hits the right notes on multiple counts, taking pressure off substantially from near war-like quest for deposits from banking system while also smoothening the bias for higher interest rates going forward. Additionally, the move effectively anchors the surge in incremental credit-deposit (C/D) ratio, nearing pre-pandemic levels, by filling the coffers and keeping banks ready to meet funding needs from diverse sectors, it added.

The study also pointed out that as overseas markets remain choppy, Indian banks should get more elbow room to meet the demands from corporates to fund their expansion plans through a mix of credit facilities. Deposit in the banking system through corporates is witnessing smart traction, majorly through bulk deposits, as better returns with liquidity and safety has made bank deposits a favourite alternative for corporates from diverse strata, including PSUs and NBFCs.

The RBI's retail CBDC project (E-RUPI) should be an ultimate beneficiary of this tactical move as it transitions from a beta-testing phase in the CUG (Close User Group). The absence of higher denomination note should propel faster adoption of E-RUPI for merchant transactions, concurrent with physical fiat currency.