It will be some time before the benefits of demonetisation to the banking industry actually show up.
In the midst of bankers at a State Bank of India (SBI) conclave in Mumbai a little over a month ago, Reserve Bank of India (RBI) Deputy Governor S.S. Mundra expressed concern over the falling deposit growth, particularly in public sector banks (PSBs), which account for over two third of the industry’s deposits and advances. The deposit growth of PSBs crashed to an all-time low of 4 per cent in 2015/16 compared to over 14 per cent five years ago. But the situation changed dramatically when Prime Minister Narendra Modi announced the demonetisation of ₹500 and ₹1,000 notes, comprising 86 per cent of the currency in circulation. For bankers, there is now a problem of plenty.
With people lining up before banks to exchange old notes or deposit cash in their current accounts & savings accounts (CASA), the banking sector has got deposits of over ₹6 lakh crore in just two weeks. Of the ₹14.5 lakh crore demonetised currency, at least ₹10-12 lakh crore is expected to flow back into the system. Kalpana Morparia, CEO of JP Morgan India, says: “(Demonetisation) is a step towards inculcating a habit of using the formal financial system.”
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