Rs 2k notes withdrawal to boost deposits, consumption: SBI Research

Though the Reserve Bank of India may have decided to withdraw Rs 2000 banknotes from circulation as a part of its currency management, the move is likely to boost various macroeconomic parameters. On May 19, 2023, RBI decided to withdraw the Rs 2000 denomination banknotes from circulation but said it will continue to remain as legal tender. However, RBI has advised banks to stop issuing such banknotes with immediate effect The Rs 2000 denomination banknote was introduced in November 2016 under Section 24(1) of the RBI Act, 1934, primarily to meet the currency requirement of the economy in an expeditious manner after the withdrawal of the legal tender status of all Rs 500 and Rs 1000 banknotes in circulation at that time. The objective of introducing Rs 2000 banknotes was met once banknotes in other denominations became available in adequate quantities. Therefore, the printing of Rs 2000 banknotes was stopped in 2018-19. SBI Research in a report analysed and argued how the withdrawal of Rs 2000 banknotes could boost bank deposits, repayment of loans, consumption, RBI’s retail digital currency usage, and overall economic growth. RBI Governor Shaktikanta Das the other day said 50 per cent of the to-be-withdrawn Rs 2,000 notes had already come back to the system after the May 19 announcement, and of those 85 per cent were through bank deposits.”Totally so far about Rs 180,000 crore of Rs 2000 notes have come back. This is roughly about 50 per cent of the Rs 2000 notes which were in circulation on March 31,” RBI Governor Das said at a post-monetary policy meeting press conference, adding about 85 per cent of those notes, on a provisional basis, have come back as deposits in bank accounts. On the basis of the RBI governor’s comments, the SBI Research in its latest Ecowrap report, put out on Monday, authored by Group Chief Economic Adviser Soumya Kanti Ghosh, argued that deposits are likely to increase. “Though some amount would be withdrawn following the deposit, but going by the current trends, CASA deposits are likely to increase (Rs 1.5 lakh crore) due to this measure,” the SBI Research report said. The report, citing All Scheduled Commercial Bank (ASCB) data, said it shows that there has been an increase in total deposits of Rs 3.3 lakh crore during the fortnight ended Jun 2, 2023. “The average increase in deposits during the same fortnight in the last two years was around Rs 1.5 lakh crore. Thus, taking that also into account, banks may have received additional deposits of around Rs 1.8 lakh crore during the fortnight this year. It seems Corporates, flush with in-hand liquidity, are parking the additional funds with Banks,” the report added.