Deposit of ₹2,000 notes, which RBI decided to withdraw from circulation as a part of its currency management, in Banks could result in a boost in bank deposits, repayment of loans, consumption, RBI retail CBDC (central bank digital currency), and a possible GDP boost, according to State Bank of India’s economic research report ‘Ecowrap’.

“The ‘precision strike’ by RBI hits the right notes on multiple counts, taking pressure off substantially from near war-like quest for deposits from the banking system while also smoothening the bias for higher interest rates going forward,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

Additionally, the move effectively anchors the surge in incremental C/D (Credit-Deposit) ratio, nearing pre-pandemic levels, by filling the coffers and keeping banks ready to meet funding needs from diverse sectors.

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Assessment details

SBI’s economic research department’s team assessed that the short-term rates (Commercial Papers/CPs) should ease from the upper crest, in alignment with smoothening of benchmark yields while CDs (certificate of deposits) raised by banks to fund the credit/investment demands should also find a rational footing.

“With overseas markets remaining choppy (further consolidation of mid and small-size banks in advances economies looks certain going ahead with elevated Fed rates distorting the flimsy equilibrium of yesteryears), Indian banks should get more elbow room to meet the demands from the corporates to fund their expansion plans through a mix of credit facilities,” Ghosh said.

Deposit in the banking system through corporates is witnessing smart traction, majorly through bulk deposits, as better returns with liquidity and safety have made bank deposits a favourite alternative for corporates from diverse strata including PSUs and NBFCs, as per Ecowrap.

e-RUPI push

The report said RBI’s retail CBDC project (e-RUPI) should be an ultimate beneficiary of this tactical move as it transitions from a beta-testing phase in the CUG (Close User Group) to hit the streets (going by the preparedness of stakeholder banks to onboard select merchants and retail individuals in the real-time payment landscape through their dedicated apps).

The absence of higher denomination notes should propel faster adoption of e-RUPI for merchant transactions, concurrent with physical fiat currency.

SBI’s Economic Research Department (ERD) expects Q1 (April-June) FY24 GDP growth at about 8.1 per cent with an upward bias due to the impact of ₹2,000 note withdrawal event. “This reinforces our projection that FY24 GDP could be higher than 6.5 per cent, basis the RBI estimate,” Ghosh said.

Notes in circulation

In value terms, the share of ₹2,000 denomination notes (at ₹3.62-lakh crore) was at 10.8 per cent as on March 2023. Going by the current trend on return of ₹2,000 banknotes, 85 per cent of these notes (₹3.08-lakh crore) will come into the banking system as deposits and the rest (₹54,000 crore) will be exchanged across the counter.

As per ERD’s assessment, ₹92,000 crore each will be deposited in the current account and loan accounts, and ₹1.23-lakh crore will be deposited in the current account.

About 60 per cent of the ₹2,000 bank notes that have been deposited in the savings account will be withdrawn, resulting in an immediate consumption of about ₹55,000 crore, the ERD team said.

Consumption boost in the long run is estimated at ₹1.83-lakh crore through the marginal propensity to consume multiplier.

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