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The cash supply situation will be closer to normal by February-end as compared to predictions of the cash shortage crisis lasting longer, according to a State Bank of India research report.
Regarding the issue of getting back to normalcy after demonetisation, SBI’s Ecowrap report observes that the latest Reserve Bank of India data show some interesting trends — as on December-end, only 44 per cent of the demonetised currency has been replaced ( vis-à-vis earlier estimate at 53 per cent).
One possible reason for this could be that the RBI is also printing notes of small denominations apart from ₹500 notes and hence, the total value getting replaced is lower than projections, though the number of pieces may not.
“Interestingly, if we assume that the RBI continues to print as it is doing now, then by January-end, only about 67 per cent of the currency should get replaced ( vis-à-vis the earlier estimate of 75 per cent),” the report said.
At this rate, by February, the RBI could print as much as 89 per cent of the total currency. However, if the RBI decides to shift its printing more towards smaller denomination notes, this number could be close to 80 per cent, the report assessed.
“Either way, we maintain, contrary to market perception, that things will be closer to normal by February-end as opposed to predictions of the crisis lasting longer. If this is the case, the possibility of GDP bouncing back faster than anticipated may not be ruled out,” said the report.
Credit growthFlagging low credit growth as a matter of concern, the report said the fortnightly data of all scheduled commercial banks indicates that credit offtake has declined to a historical low of 5.1 per cent as on December 23, 2016.
During the period November 11 to December 23, 2016, credit offtake declined by ₹5,229 crore, while bank deposits grew by around ₹4 lakh crore.
In the demonetisation period (November-December 2016), though there was a negative growth in incremental credit, housing credit still managed to grow by ₹4,063 crore. According to Ecowrap, following the rate cuts by banks like SBI, the evidence is strong for a rebound in credit growth, at least in the housing sector.
Going forward, SBI economists say the RBI may not oblige with a rate cut in February as global uncertainties may again play spoilsport.
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