Rs 2,000 note withdrawal: Banks see majority notes from businesses

The Rs 2,000 note was introduced in November 2016 to meet the currency requirement after Rs 500 and Rs 1,000 notes were demonetised.

Data sourced from at least three banks show that a good chunk of the Rs 2,000 notes in deposits and exchanges from businesses are from businesses, and not from retail customers.

The Reserve Bank of India (RBI) had, on August 1, said that Rs 2,000 banknotes worth Rs 3.14 lakh crore, or 88 percent in circulation, have returned to the banking system as on July 31.

The RBI also launched an ICRR (Incremental Cash Reserve Ratio) to mop up excess liquidity in the banking system, following the withdrawal of Rs 2,000 notes.

The RBI had announced the withdrawal of Rs 2,000 notes on May 19, 2023, as part of its clean-note policy.

How much have banks received?

Public-sector lender Indian Overseas Bank (IOB) received Rs 2,000 notes worth Rs 3589 crore through deposits and exchanges.

“We have 40 percent from businesses and mostly from small-level traders," said Ajay Srivastava, MD and CEO, IOB. Similarly, another public sector bank, UCO Bank, received Rs 2,000 notes worth Rs 3,471 crore in deposits and exchange.

"We have received 42 percent of Rs 2,000 notes from individuals and 58 percent from businesses. In total, we received Rs 471 crore in terms of exchange and Rs 3,000 crore in terms of deposits," said Ashwani Kumar, Managing Director and Chief Executive Officer (MD & CEO), UCO Bank.

Also read: RBI recalls all Rs 2,000 currency notes from circulation

Similarly, City Union Bank received Rs 380 crore. A top official of the bank, speaking on condition of anonymity, said that that bank has received around 90 percent of the Rs 2,000 notes from businesses.

A top official of another public sector bank, who did not wish to be named, also said that most of the deposits are coming from businesses, whereas individuals are doing exchanges more.

“These notes (Rs 2,000) were mostly with businesses and individuals did not have much notes. This is why a trend of businesses depositing more Rs 2,000 notes with banks is observed,” the PSB executive said.

Total notes

On August 1, 2023, the RBI said that Rs 2,000 notes worth Rs 3.14 lakh crore, or 88 percent in circulation, have returned to the banking system as on July 31. Consequently, Rs 2,000 banknotes in circulation, as at the close of business on July 31, remained at Rs 0.42 lakh crore, the RBI said in a press release.

Also read: Rs 2,000 note withdrawal: Banks see no rush for exchange, deposit

Of the total notes received back from circulation, 87 percent is in the form of deposits while the remaining 13 percent has been exchanged into other denominations, release added.

India’s largest lender, State Bank of India, had received Rs 2,000 notes worth Rs 14,000 crore in deposits.

Bank of Baroda (BoB) has so far received Rs 2,000 notes worth Rs 10,000 crore, either as deposits or in exchange. Indian Bank received the notes worth Rs 7,000 crore until July 26, 2023. Shanti Lal Jain, MD & CEO of Indian Bank, told this to Moneycontrol in an interview on July 28.

Private-sector lender Kotak Mahindra Bank received Rs 6,300 crore in Rs 2,000 notes until June 15. South Indian Bank has received Rs 2,000 notes worth Rs 888 crore until June 13, with the bulk of the withdrawn currency being deposited in their accounts by individuals.

Also read: Nearly two-thirds of Indians don't hold a single Rs 2,000 note, survey finds

Withdrawal of Rs 2,000 notes

The RBI had, on May 19, 2023, announced the withdrawal of Rs 2,000 notes as part of its clean-note policy. For smooth completion of exchange or deposit, the RBI provided all banks time until September 30, 2023. It also advised banks to stop issuing the Rs 2,000 denomination notes with immediate effect.

As the objective was met and smaller denomination notes were available in adequate quantities, printing of the Rs 2,000 notes was stopped in 2018-19.

According to RBI data, the total value of Rs 2,000 denomination banknotes in circulation was Rs 3.62 lakh crore, constituting 10.8 percent of the total notes in circulation on March 31, 2023.

Also Read: Banking Central | Rs 2,000 notes; did these bills do more harm to us than good?

“It has also been observed that this (Rs 2,000 banknote) denomination is not commonly used for transactions. Further, the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public,” the RBI said in the release.

The Rs 2,000 note was introduced in November 2016 to meet the currency requirement after Rs 500 and Rs 1,000 notes were demonetised.

RBI, on August 10, said that banks have to maintain a 10 percent ICRR from August 12 as part of the central bank's efforts to drain excess liquidity from the banking system, following the withdrawal of the Rs 2,000 currency note.

ICRR is a temporary measure employed when there is a sudden increase in deposits to drain off the liquidity.