An SBI study said on June 19 that the withdrawal of Rs 2,000 currency notes will boost bank deposits, repayment of loans, and have a positive impact on consumption and Reserve Bank of India's retail CBDC (central bank digital currency).
On May 19, the banking regulator decided to withdraw the highest-denomination note of Rs 2,000 from circulation as a part of currency management. In value term, the share of 2,000 denomination notes (Rs 3.62 lakh crore) was at 10.8 percent as on March 23.
RBI Governor Shaktikanta Das said on 8 June that around 1.8 lakh crore of 2,000-rupee notes had come back into the system. Of this, around 85 percent or Rs 1.5 lakh crore have come as deposits and the rest are exchanged for other smaller denominations.
“Even as Rs 1.5 lakh crore of Rs 2,000 notes has been deposited at the banks...This implies that the amount spent / exchanged by people over the counter is Rs 60,000 crore (Rs 1.5 lakh crore net of Rs 90,000 crore decline in currency in circulation Rs 60,000 crore)... This could also result in a bank deposit boost, repayment of loans boost, consumption boost, RBI retail CBDC boost and a possible GDP boost,” the SBI study mentioned.
The ‘precision strike’ by the central bank hits the right notes on multiple counts, taking pressure off substantially from near war-like quest for deposits from banking system while also smoothening the bias for higher interest rates going forward. Additionally, the move effectively anchors the surge in incremental credit-deposit (C/D) ratio, nearing pre-pandemic levels, by filling the coffers and keeping banks ready to meet funding needs from diverse sectors, it added.
The study also pointed out that as overseas markets remain choppy, Indian banks should get more elbow room to meet the demands from corporates to fund their expansion plans through a mix of credit facilities.
Deposit in the banking system through corporates is witnessing smart traction, majorly through bulk deposits, as better returns with liquidity and safety has made bank deposits a favourite alternative for corporates from diverse strata including PSUs and NBFCs.
RBI’s retail CBDC project (E-RUPI) should be an ultimate beneficiary of this tactical move as it transitions from a beta-testing phase in the CUG (Close User Group). The absence of higher denomination note should propel faster adoption of E-RUPI for merchant transactions, concurrent with physical fiat currency.
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