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The banking system deposit base is likely to increase by Rs 1.4 lakh crore to Rs 2 lakh crore due to the deposit of Rs 2,000 notes, whose withdrawal was announced by the Reserve Bank of India (RBI) on May 19, economists say. However, this increase in deposits may be transient.
The central bank said the existing Rs 2,000 notes can be deposited or exchanged in banks till September 30.
As on March 31, 2023, the total value of Rs 2,000 notes in circulation stood at Rs 3.62 lakh crore, constituting only 10.8 per cent of notes. “On a net basis, it is likely that deposits will increase by Rs 1.5-2 lakh crore. Durable liquidity could increase by around Rs 1 lakh crore depending on the behaviour of depositors. This should ease the credit-deposit ratio across banks,” Kotak Mahindra Bank said in a report. Total bank deposits stood at Rs 184.35 lakh crore as on May 5, 2023, as per the latest RBI data.
“While most Rs 2,000 notes are likely to be initially deposited with banks and will improve the deposit base and, thus, system liquidity by as high as Rs 1.4-1.6 lakh crore,” Emkay Global Financial Services Ltd’s Lead – Economist Madhavi Arora said in a report.
She, however, said most likely Rs 2,000 notes will be exchanged for a lower denomination and thus will be liquidity neutral.
Some of the new deposits in lieu of Rs 2000 notes may be temporary in nature and may be drawn immediately in cash thereafter as part of the precautionary currency demand and, thus, will be liquidity neutral, she said.
A portion of the otherwise difficult-to-transact Rs 2000 notes maybe with the public for circumventing the taxation route and may not find its way back into the banking system but instead be spent on high-end consumer durables/gold/or even real estate, Arora noted.
