Banks are set to see a jump in their total deposits once customers start depositing old R500 and R1,000 denomination notes in their bank accounts in order to exchange a part of it for fresh currency notes, analysts pointed out on Wednesday. They added that it will also lead to greater household financial savings over the next few years.
“Old currency notes are deposited with banks, bank deposit growth will witness a pickup and currency in circulation will moderate — a positive for banking sector liquidity,” analysts at Nomura said. For the fortnight ended October 28, total bank deposits stood at R99.83 lakh crore.
Kotak Institutional Equities analysts said household financial savings is expected to grow from 7.7% of GDP to 10.9% in 2020 and then to 12.9% in 2025.
This follows the government’s decision to introduce a new series of bank notes called Mahatma Gandhi (new) series of different size and design in R500 and R2,000 denominations. According to the government notification, customers will be able to exchange up to R4,000 of old notes in cash at a bank branch but will be required to deposit old currency notes upwards of R4,000 in their bank accounts.
Industry experts also believe that the 25.4 crore accounts opened by banks under Jan-Dhan Yojana will see a fall in zero balance accounts which stood at 23% as in November. While 19.5 crore debit cards were issued under the programme, the balance is R45,300 crore. Kotak Institutional Equities’ said in a report as rural households open new bank accounts to deposit old notes, it may also end up giving a boost to the government’s financial inclusion thrust.
FE had reported that the Indian banking system reported total deposits of R100 lakh crore for the first time ever in September. With demand deposits crossing R10 lakh crore and time deposits crossing the R90 lakh crore mark, the month saw the highest-ever monthly rise of R5.32 lakh crore — more than the total deposits in the banking sector 20 years back. While banks’ deposits grew at a CAGR of 12.88% in the last five years, they had grown at a CAGR of 19.9% in the previous five years.
According to Karthik Srinivasan, senior vice president at rating agency ICRA, the total deposit in the system could rise by as much as R3 lakh crore. “Since the currency in circulation in R500 and R1,000 denominations is at R14.17 lakh crore, more than 20% of it could come to the banking system in the form of deposits,” he explained.