Rs 2,000 note withdrawal: Digital payments may get a push, says former RBI Deputy Governor

Former Reserve Bank of India (RBI) Deputy Governor NS Vishwanathan has ruled out the withdrawal of Rs.2,000 currency notes having any major impact on businesses.

In an interview with Moneycontrol, Vishwanathan also noted that there is a lot of time for businesses to work around the withdrawal, terming the knee-jerk panic sparked by the move uncalled for.

People have time until September 30 to exchange their Rs 2,000 notes. The exchange starts on Tuesday. RBI has also clarified that the notes will continue to be legal tender after September 30.

Digital payments boost

Vishwanathan said the central bank, in the past few years, has been focusing on pushing digital payments and that the withdrawal of Rs 2,000 notes help in that direction.

“Digital payments have been very popular in the last few years. RBI’s decision will only help boost the digital payments system,” said Vishwanathan.

Also read: From 1946 to 2023, a timeline of demonetisation and rupee note withdrawals in India

Viswanathan’s expertise in the RBI included currency management, regulation and supervision of banks and non-banking financial companies (NBFCs), foreign exchange, and so on.

In the interview, he also said the withdrawal was logical, considering its low availability in the market and in the hands of the common people.

Edited excerpts:

The move by RBI to withdraw Rs 2000 notes, did it come as a surprise to you?

Firstly, the decision by the central bank is backed by logic. The note was not used much by the common public and hence, its withdrawal should not affect the people.

Secondly, the decision will help banks majorly to work around the excess deposits they will get as people will deposit their money. So overall, it is a good move.

How do you see the decision affecting businesses? Will they start exchanging notes below its fixed value in the black market?

Businesses and majorly smaller businesses, which generally have a major impact due to a move around currencies, will not be impacted by the Rs 2,000 note withdrawal.

The central bank has given a time of 3-4 months for the people to work around their Rs 2,000 notes. The move is not short-term, right? The apex bank has pushed the decision and given considerable time for people as well as businesses to exchange or deposit their Rs 2,000 notes.

Largely, there should not be any problem considering the timeline provided.

After the RBI announced the decision, there was some sort of panic on social media. Do you see people rushing to bank branches like they did during demonetisation in 2016?

No, people will not rush to bank branches. There is enough time for them to deposit or exchange Rs 2,000 notes with the banks. Since the supply of these notes was very less in the hands of the common people, you may not see any impact on their finances.

Largely, they will stay unaffected as they too were not using the currency widely. The central bank has given a lot of time to people and here they can go to banks with ease.

Also read: Rs 2,000 note withdrawal | Deposit accretion of banks to improve, decision taken with due precaution: experts

How will this move affect banks? Will they see deposit accretion?

One thing which will work in favour of banks is that they will have more deposits. After the central bank’s move, one can understand that people will like to keep less cash as they can pay digitally anywhere and this will motivate them to deposit the same cash with banks.

So, banks are likely to see more deposits with them.

On the digital front, how do you see RBI’s decision to withdraw Rs 2,000 notes affecting people’s spending?

The number of digital transactions is only increasing. Unified Payments Interface (UPI) is widely used for making small as well as big transactions. RBI would want people to have less cash in hand, which will eventually push more transactions via different digital mediums.

One thing that is unsure and kept for guesses is whether the move to Rs 2,000 notes was intended to push digital transactions or not. But eventually, the push for more digital transactions will happen with time.