Bulk of the people have already deposited their cash in banks. The trend of long queues outside banks for deposits in December is very unlikely, says Keki Mistry, Vice Chairman and CEO of HDFC. He says the news that Rs 11 lakh crore having already been deposited is only a rumour and not backed by any credible source.
He says the Reserve Bank of India is likely to cut rates by around 25-50 basis points next week. With hopes of RBI cutting rates and US Federal Reserve raising rates, the rupee is going to take a beating, thus creating inflationary pressures in the economy.
Below is the transcript of Keki Mistry’s interview to Ekta Batra and Prashant Nair on CNBC-TV18.
Ekta: Just to start the conversation, we understand that out of around Rs 14.5 lakh crore, Rs 11 lakh crore is back with the banks with a month to go for the deadline for December 31 and demonetisation to end. Your view on demonetisation and the numbers that I just related to you?
A: I do not know how accurate these numbers are. My understanding from what I believe is about Rs 8,44,000 crore had come as of last week or something. Fundamentally you have to look at it like this that black money has to come out of the system. There is no question of a doubt about it. It is extremely unfair that you have a small group of people who pay all the taxes and a reasonably large part of people have the income to pay but just evade paying taxes. So, any move to capture black money has to be really truly encouraged by the everyone.
Now, the other thing we must bear in mind, whatever be the number, we will have to wait till December 31 to understand how much money has come back and how much money has not come back. But whatever happens, the fact of the matter is that most people, when something like this happens would rush to banks and start depositing their cash. So, you saw in the first three weeks that there were massive queues outside most bank branches for people just carrying cash, depositing that cash into the bank and taking out fresh notes or just depositing it and leaving it there.
So, the bulk of the people who want to deposit it would have gone as soon as they can. So one way to look at it is most people who had cash with them have already gone and deposited the cash and therefore, the likelihood of a similar trend coming in the next month is honestly very unlikely. But we have to wait till December 31 to assess how much money has come back and how much is not.
Prashant: We have it from very good sources that the number is Rs 11 lakh crore which is back with banks. Let us go with that number for a minute and now it is only fair to ask the question – I understand that pace of inflow now will slow down, but the gap is not that much from the original stock of Rs 500 and Rs 1,000 and what is already back with banks given the Rs 11 lakh crore figure. How would you rate or grade it?
A: It is conjecture at the moment, so we will have to wait till December end to see really how much money has come in. But I guess we have heard of instances where people have converted their black money into white money. So many stories we have heard in the press. So some bit of that may have happened. But even if a fair bit of the black money comes out or does not get deposited or gets deposited and the additional tax gets paid, it is that much more advantageous. But the more important thing is not the past, not the stock, but the trend of people going forward. So, if you start believing that the government is serious about eradicating black money going aggressively after black money, then the incidence of people creating more black money in the future hopefully reduced. Again, time will tell. But that could definitely be an advantage.
Ekta: What is your sense? Do you expect the RBI’s cash reserve ratio (CRR) move announced a couple of days ago to possibly limited to December 9?
A: I do not think it can last for very long. It is a matter of timing. Whether it will be two weeks or whether it will be three weeks, I do not know. But I do not think it can be for very long, honestly.
Prashant: Do you expect a 25 basis point rate cut next week, Wednesday?
A: I would believe that 25 basis points cut in interest rates in my view is almost certain to happen. The only question I would say is would it be 25 or could it even be 50? And I think there is a possibility that even a 50 basis point cut in interest rates could be considered by RBI. But the only thing the RBI would need to keep in mind is that the fact that that would be the time when the Fed would be increasing rates. So, we would be in a situation where Fed is increasing rates, India is reducing rates and the impact that will have on the currency is something the RBI may want to keep in mind because if the currency starts depreciating or depreciating sharply, some degree of depreciation has already happened. But if it depreciates sharply, also because of dollar strength more than anything else, then that puts inflationary pressures back in the economy because the imports start costing a higher amount. Oil prices we have seen started inching up a little bit because of the recent Organisation of Petroleum Exporting Countries (OPEC) decision. So, all those factors RBI will have to keep in mind.