A man holds Rs.2,000 currency notes to get them exchanged at a bank.
| Photo Credit: SANDEEP SAXENA
About three-fourths of Indians are choosing to deposit the recently withdrawn ₹2,000 notes into bank accounts so far rather than exchanging them for smaller denominations, with the trend likely to boost bank deposits, bankers said.
In May, the Reserve Bank of India (RBI) said it would withdraw these high-value notes from circulation and permitted their exchange or deposit until September 30.
Exchange is only permitted up to ₹20,000 per turn, while there is no limit on depositing the notes, which also earns interest.
When announced, the value of these notes in circulation was ₹3.6 trillion ($43.61 billion), the RBI said.
Though the total quantum of notes deposited or exchanged so far is not available, six public and private sector bankers Reuters spoke to said over 80% of the notes received by them have been deposited into accounts.
State Bank of India – the country’s largest lender – had received about ₹170 billion in value terms in the first week since the exercise began on May 23, a senior official said.
Of this, ₹140 billion, or 82%, was deposited into accounts, while the rest was exchanged, he said.
Officials at Bank of Baroda, Union Bank of India and Bank of India also said 80%-90% of the notes were deposited, without specifying the quantum they received.
The experience at two large private sector banks was similar. All the bank officials declined to be identified as they are not authorised to speak to the media.
Kotak Mahindra Bank received more than ₹30 billion of the ₹2,000 notes till May 30, Virat Diwanji, group president and head of consumer banking said.
Of this, 80%-85% has been deposited, with a “good majority” coming into current accounts, he said.
The inflow will likely push up bank deposit growth from the current 10.9% and reduce currency in circulation (CIC), which dropped to ₹365 billion in the week ending May 26, RBI data showed.
Some part of the decline in CIC could be attributed to the ₹2,000 note exchange, said Gaura Sen Gupta, India economist at IDFC FIRST Bank.
With 75% of the total notes being deposited by September, bank deposits could go up by ₹2.7 trillion, said Dipanwita Mazumdar, an economist at Bank of Baroda.
The initial assumption is the overall bank deposit base would increase by at least ₹1.5 trillion, with SBI contributing 22%-25%, the SBI official said.
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