Turning On The Digital Tap

Banks, fintech companies and payment solution firms get a shot in the arm as demonetisation suctions out 86 percent of currency in circulation.

- Salil Panchal

Ever since the central government’s November 8 announcement to replace Rs 500 and Rs 1,000 notes with new ones, the term ‘demonetisation’ has become synonymous with images of thousands making a beeline at bank counters to exchange old notes, even as ATMs are being recalibrated to disburse new ones.

The flow and usage of currency have been hurt due to a shortage of new Rs 500 notes even as Prime Minister Narendra Modi’s sudden move eliminated nearly 86 percent of the currency in circulation. The government’s aim was to attack counterfeit cash (which is allegedly being used to fund terror activity) and clean up the ‘black money’ in the system.

Between November 10 and November 27, bank deposits totalled Rs 811,033 crore and exchange of old notes totalled Rs 33,948 crore, according to the Reserve Bank of India. Banks have also reported that during this period, people withdrew Rs 216,617 crore from their accounts either over the counter or through ATMs.

With currency notes in short supply, discretionary spending on items such as luxury cars, gems and jewellery and real estate will be impacted, but the banking sector, over the medium term, will see gains, according to HDFC Bank’s Investment Advisory Group. Banks, financial technology (fintech) companies and payment solution firms—who have been wooing customers with digital transactions— have got a further boost.