The Reserve Bank of India (RBI) has estimated that banks would make a net interest income (NII) of Rs 4,500 crore from increased deposits in a quarter after demonetisation. The RBI, in its assessment on the macroeconomic impact of demonetisation, said banks earned a return of 6.23-6.33 per cent under reverse repos and market stabilisation scheme (MSS) as against the cost of CASA (current and savings account) deposits of around 3.2 per cent.
“Accordingly, for an average deployment of about Rs 6,00,000 crore in a quarter under reverse repos and MSS securities, banks’ net interest income from increased deposits is estimated at about Rs 4,500 crore in a quarter after demonetisation,” it said.
Bulk of the deposits so mobilised by banks have been deployed in reverse repos of various tenors with the RBI and cash management bills (CMBs) issued under the Market Stabilisation Scheme (which is a part of investment in government securities in the balance sheet of banks), the RBI said.
The increase in NII would need to be adjusted for the cost of managing withdrawal of Rs 500 and Rs 1,000 notes and injection of new bank notes (such as calibration of ATM machines, staff overtime, security arrangements, lower fees/waiver of fees on digital modes of payments), the RBI said. However, banks have slapped service charges on various customer services earlier this month.
As per the RBI, between October 28, 2016 and January 6, 2017 — days immediately prior to and after demonetisation for which fortnightly banking system data are available — total currency in circulation declined by about Rs 8,80,000 crore. This, in turn, was largely reflected in sharp increase of about Rs 6,72,000 crore in aggregate deposits of the banking system even after outflows in NRI deposits during the period, it said.
The RBI further said Jan Dhan account holders pulled out Rs 10,300 crore by March 1 this year from the maximum deposit level of Rs 74,600 crore on December 7, 2016 when the demonetisation drive was at its peak. The withdrawal from the Jan Dhan accounts happened in January and February, after demonetisation deadline expired on December 30, 2016. While Jan Dhan deposits fell to Rs 64,300 crore as on March 1, 2017, they were still higher by 41 per cent over the level of November 9, 2016, when demonetisation began, according to RBI data.
The central bank said post-demonetisation, 23.3 million new accounts were opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY), bulk of which (80 per cent) were with public sector banks. Of the new Jan Dhan accounts opened, 53.6 per cent were in urban areas and 46.4 per cent in rural areas.
“The total balance in PMJDY deposit accounts peaked at Rs 74,600 crore as on December 7, 2016, from Rs 45,600 crore as on November 9, 2016, an increase of 63.6 per cent,” the RBI said. As there were reports regarding the use of these accounts to convert black money into white, the government issued a warning against the misuse of such accounts. The government also capped deposits into PMJDY accounts at Rs 50,000 on November 15, 2016. “Jan Dhan accounts contributed 4.6 per cent in total accretion of aggregate deposits of commercial banks in the post-demonetisation period,” it said.
“Between end-December 2016 and early March 2017, there was a net increase in currency in circulation by about Rs 2,60,000 billion. During this period, deposits with banks also declined moderately,” the RBI said. The RBI report also revealed that premiums collected by life insurance companies more than doubled in November. Premiums collected by Life Insurance Corporation of India (LIC) rose more than 140 per cent (y-o-y) in November 2016, against less than 50 per cent by private sector life insurance companies. “About 85 per cent of the total collections by LIC in November 2016 were under the ‘single premium’ policies, which are paid in lump sum, unlike the non-single premium policies that can be paid monthly, quarterly or annually,” the RBI said.
LIC effected a downward revision in the annuity rates of its immediate annuity plan Jeevan Akshay VI purchased from December 1, 2016, which might have created a spurt in collections in November 2016 for LIC. “The impact, however, seemed to be a one-time jump with the collections tapering subsequently,” the RBI said.
Loan disbursals by all categories of NBFCs declined significantly in November 2016 compared with the monthly average disbursals during April-October 2016, especially for micro finance companies (NBFC-MFIs) whose business is more cash intensive NBFCs operating in semi-urban and rural areas rely more on cash and thus got affected, the RBI said. Fresh loan demand for large truck operators fell with lower freight business.
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