The State Bank of India (SBI) has published research outlining how the recent withdrawal of rupees two thousand notes may increase bank deposits, loan repayment, and even the nation’s GDP. According to the article, the withdrawal was a targeted attack, and UPI might replace the 2,000 note.
As of March 2023, 10.8% of all 2,000 notes were held, according to SBI. A total of 1.8 lakh crore in notes of Rs. 2000 were returned to the system, of which 85%, or 1.5 lakh crore, were accepted as deposits, and the remaining amount was exchanged for notes of lower denominations.
Even though banks have received deposits totaling 1.5 lakh crore in 2000-rupee notes,This suggests that people spend or exchange 60,000 crores of rupees over the counter (net of 1.5 lakh crores of rupees and the 90,000 crore drop in the amount of cash in circulation)…This might also lead to an increase in bank deposits, loan repayments, consumption, RBI retail CBDC, and possibly an increase in GDP, the report said.
The “precision” strike “hits the right notes on multiple counts, taking pressure off significantly from the nearly warlike quest for deposits from the banking system while also smoothing the bias for higher interest rates going forward,” according to the paper.
The removal of the 2,000 note from circulation is predicted to have an upward tilt on GDP growth, which is projected to be 8.1% in Q1 FY24. According to the paper, “This supports our prediction that FY24 GDP may be higher than 6.5%.”
According to the study, current account and savings account (CASA) deposits are likely to increase as a result of the withdrawal, and ASCB data indicates that there has been an increase in total deposits of approximately 3.3 lakh crore.
Additionally, the elimination of the 2,000 note might cause 30% of the deposits, or 92,000 crore, to go into debt repayments. The report said that “interestingly, credit growth continues to remain quite strong, despite repayments getting frontloaded.”
The withdrawal could cause a rise in consumer demand that would be “frontloaded by 55,000 crores” in terms of spending.
UPI has essentially “replaced much of the currency in circulation,” according to the SBI study.
