Bank deposits slump by ₹90,000 cr in fortnight ended January 20

After the spurt in deposits during the demonetisation period (November 8 to December 30), banks now seem to be witnessing a reversal.

Bank deposits declined by a whopping ₹90,169 crore in the fortnight ended January 20, 2017, according to Reserve Bank of India data.

If one takes into account the fact that banks were open for 12 days during the reporting fortnight, the average daily deposit withdrawal works out to about ₹7,514 crore.

A back-of-the-envelope calculation shows that banks would have mopped up over ₹5 lakh crore as deposits during the demonetisation period.

Bankers are expecting about 70 per cent of the deposits to flow out while the rest could get converted into fixed deposits.

The deposit withdrawal comes in the backdrop of the daily withdrawal limit from ATMs first being increased (within the overall weekly limits specified) with effect from January 1, 2017, from the then existing ₹2,500 to ₹4,500 per day per card.

On January 16, the limit on withdrawals from ATMs was enhanced to ₹10,000 per day per card (within the existing overall weekly limit) from ₹4,500 and the limit on withdrawal from current, overdraft, and cash-credit accounts were raised to to ₹1 lakh per week from ₹50,000 per week.

In a move that took the nation by surprise, Prime Minister Narendra Modi announced on November 8, 2016, that ₹500 and ₹1,000 currency notes would no longer be legal tender from midnight of that that day.

Modi said the scrapping of the notes was aimed at tackling corruption, black money, money laundering, terrorism/financing of terrorists, and counterfeit notes.

In his Budget speech, Finance Minister Arun Jaitley observed that after demonetisation, preliminary analysis of data received in respect of deposits made by people in old currency notes presents a revealing picture.

He said during the period November 8 to December 30, deposits between ₹2 lakh and ₹80 lakh were made in about 1.09 crore accounts with an average deposit size of ₹5.03 lakh. Deposits of more than ₹80 lakh were made in 1.48 lakh accounts with average deposit size of ₹3.31 crore.

Following the huge deposit inflows, banks slashed their marginal cost of funds-based lending rate (MCLR).

For example, SBI slashed its one-year MCLR by 90 basis points to 8 per cent on January 1.

Despite the lending rate cuts, credit growth for the banking system as a whole has been sluggish. In the reporting fortnight, credit given by the banking system nudged up by only ₹5,890 crore.

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