₹2.8-4.3 lakh cr of excess deposits entered banking system during demonetisation | Business Line–12.08.2017

Excess deposits in the range of ₹2.8-4.3 lakh crore accrued to the banking system during the demonetisation period, with unusual cash deposits in specific accounts, which were usually less active, estimated to be in the range of ₹1.6-1.7 lakh crore, according to a study conducted by Reserve Bank of India staff.

On November 8, 2016, currency notes of ₹1,000 and ₹500 denominations (specified bank notes or SBNs), valued at ₹15.4 lakh crore and constituting 86.9 per cent of the value of total notes in circulation were demonetised.

The SBNs were demonetised (between November 9 and December 30, 2016) in a bid to fight corruption, black money, money laundering, financing of terrorists, and counterfeit notes.

Before discontinuation of the over-the-counter exchange facility at bank branches on November 25, 2016, about ₹37,000 crore of SBNs were tendered, according to a study by Bhupal Singh (Director,Monetary Policy Department) and Indrajit Roy (Director,and Department of Statistics and Information Management).

7 types of accounts

The paper said a significant amount of SBNs flowed into seven special types of accounts — basic savings bank deposit accounts; PMJDY accounts; Kisan Credit Card; dormant or inoperative accounts; co-operative bank accounts with scheduled commercial banks (SCBs); bullion trader/jewellers’ accounts; and loan accounts.

In scenario 1, the estimated cash deposits in the aforementioned accounts during November-December 2016 with 52 banks were ₹4,35,800 crore. Cash deposits in these accounts during September-October 2016 were ₹2,70,100 crore. Thus, the variation of ₹1,65,700 crore can be assumed to be the increase in cash deposits under these accounts due to demonetisation in the absence of any noticeable activity in such accounts during normal times.

In scenario 2 (based on year-on-year growth of aggregate cash deposits), the estimated cash deposits in seven types of accounts with 52 banks were ₹4,35,800 crore during November-December 2016 and ₹3,06,500 crore during November-December 2015.

Average y-o-y growth of net deposits (deposits minus withdrawals) of all types of accounts of SCBs during November-December for last five years was (-)9.2 per cent.

In the above scenario, the estimated trend of cash deposits in these accounts during November-December 2016 is ₹2,78,300 crore. Thus, excess cash deposits during November-December 2016 work out to ₹1,57,500 crore.

Given the unusual cash deposits in specific accounts, which are usually less active, the authorities have opened investigations on the source of funds that flowed into the accounts.

(This article was published on August 11, 2017)

via ₹2.8-4.3 lakh cr of excess deposits entered banking system during demonetisation | Business Line

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