Rs 2000 notes withdrawal to spice up deposit and consumption, argues SBI Research

Though the Reserve Bank of India might have determined to withdraw Rs 2000 banknotes from circulation as part of its forex administration, the transfer is more likely to enhance numerous macroeconomic parameters.

On May 19, 2023, RBI determined to withdraw the Rs 2000 denomination banknotes from circulation however stated it would proceed to stay as authorized tender. However, RBI has suggested banks to cease issuing such banknotes with speedy impact. 

The Rs 2000 denomination banknote was launched in November 2016 below Section 24(1) of the RBI Act, 1934, primarily to satisfy the forex requirement of the financial system in an expeditious method after the withdrawal of the authorized tender standing of all Rs 500 and Rs 1000 banknotes in circulation at the moment.

The goal of introducing Rs 2000 banknotes was met as soon as banknotes in different denominations turned obtainable in satisfactory portions. Therefore, the printing of Rs 2000 banknotes was stopped in 2018-19.

SBI Research in a report analysed and argued how the withdrawal of Rs 2000 banknotes may enhance financial institution deposits, reimbursement of loans, consumption, RBI’s retail digital forex utilization, and total financial development.

RBI Governor Shaktikanta Das the opposite day stated 50 per cent of the to-be-withdrawn Rs 2,000 notes had already come again to the system after the May 19 announcement, and of these 85 per cent have been via financial institution deposits.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 stated at a post-monetary coverage assembly press convention, including about 85 per cent of these notes, on a provisional foundation, have come again as deposits in financial institution accounts.

On the premise of the RBI governor’s feedback, the SBI Research in its newest Ecowrap report, put out on Monday, authored by Group Chief Economic Adviser Soumya Kanti Ghosh, argued that deposits are more likely to improve.

“Though some amount would be withdrawn following the deposit, but going by the current trends, CASA deposits are likely to increase (Rs 1.5 lakh crore) due to this measure,” the SBI Research report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, citing All Scheduled Commercial Bank (ASCB) information, stated it reveals that there was a rise in whole deposits of Rs 3.3 lakh crore throughout 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,” the report added.

Adding to the Rs 2000 banknote deposits, among the sectors — Refinery, Oil and Gas, Power, and Chemicals — which reported improved money and financial institution steadiness, based on the report, are believed to be extra energetic in parking funds with banks.

On the credit score entrance, as per SBI Research’s evaluation, 30 per cent of deposits (or Rs 92,000 crore) may go for mortgage cost and argued that credit score development continues to stay fairly sturdy regardless of repayments getting frontloaded.

Further, the Ecowrap report argued that one of many different main advantages of withdrawal of Rs 2000 be aware is likely to be the speedy uptick in consumption demand. As per estimates, the consumption demand could also be frontloaded by Rs 55,000 crore.

“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 stated.

Cash worth transactions at vitality stations, money on supply for purchases, donations in temples, and numerous sundry purchases are additionally more likely to rise, it argued.

The whole worth of those Rs 2000 banknotes in circulation had declined from Rs 6.73 lakh crore at its peak of March 31, 2018 (37.3 per cent of Notes in Circulation) to Rs 3.62 lakh crore constituting solely 10.8 per cent of Notes in Circulation on March 31, 2023. It was additionally noticed that this denomination was not generally used for transactions.

Meanwhile, individuals can alternate or deposit their Rs 2,000 notes in financial institution branches and regional branches of RBI. A non-account holder can also alternate Rs 2000 banknotes as much as a restrict of Rs 20,000 at a time at any financial institution department.

As of now, RBI stated the alternate facility is accessible until September 30, 2023, and the notes proceed to be authorized tender. September 30 has been determined because the final date for the aim of finishing the train in a time-bound method and to offer satisfactory time to the general public. RBI is more likely to revisit the September deadline primarily based on the state of affairs going forward.

The demonetization drive carried out in 2016 and the withdrawal of Rs 2000 now isn’t comparable. Legal tender standing for Rs 500 and Rs 1000 notes have been withdrawn proper from day one in 2016. For Rs 2000 notes, it, nonetheless, continues to be authorized tender and folks can use it for any transactions.

“Good thing is that there has been no rush in any of the banks,” the RBI governor stated lately, interesting to individuals to not rush to banks in panic. He notably urged individuals to keep away from the last-minute rush at financial institution branches.

(This information report is revealed from a syndicated feed. Except for the headline, the content material has not been written or edited by OpIndia employees)