According to an SBI analysis released on Tuesday, the discontinuation of the Rs. 2000 banknote is likely to be a non-event but would have a positive impact on liquidity, bank deposits, and interest rates.
The 131-day window to swap junked 2000 rupee currency notes began on Tuesday, although there were a variety of short lines and misunderstanding at some banks on the need for official documents like PAN or Aadhaar.
When the previous 500 and 1000 rupee notes, which made up around 86% of the money in circulation, were outlawed overnight in November 2016, it led to long lines outside bank offices all throughout the nation. This time, however, there is no such congestion.
According to the SBI research paper “Ecowrap,” practically the full amount of Rs 3.6 lakh crore in the form of Rs 2000 notes is anticipated to return to the banking system (the report estimates that 10-15% of the total value of Rs 2000 notes remain in currency chests).
“Even if the impact of the removal of the Rs. 2000 note is small, it will have a positive effect on liquidity, bank deposits, and interest rates.
Banks will already be keeping some of these notes in their currency chests, thus the effect on deposits will be minimal, according to our understanding of exchange/deposit dynamics.
According to Ecowrap, India has been achieving new milestones in digital payments, both in terms of value and volume, demonstrating the strength of its payment ecosystem and adoption by a broad range of customers.
“If we look at the 'total digital payments' percentage of nominal GDP, it has increased to 767 percent in FY23 from 668 percent in FY16,” the statement said.
Retail digital payments (excluding RTGS) as a percentage of GDP increased from 12.9 to 242 in FY23.
According to the survey, UPI has emerged as the most well-liked and favoured payment method in India, pioneering both Person to Person (P2P) and Person to Merchant (P2M) transactions, which together make up nearly 73% of all digital payments.
Between FY17 and FY23, the number of UPI transactions more than doubled, from 1.8 crore to 8375 crore. The value of UPI transactions has also grown significantly, leaping by 2004 times over the same period from barely Rs 6,947 crore to Rs 139 lakh crore.
The study also said that the amount of money in circulation has reduced to 12.4% of GDP in FY23, which is almost the same level as 2015-16.
Around 10.8% of all cash in circulation, or Rs 3.6 lakh crore, is made up of Rs 2000 notes. Up to September 30, 2023, the notes may be deposited or exchanged.
This time, as compared to demonetization, a lesser amount of money is being withheld, and the process will take longer to finish.
With the previous 500 and 1000 notes no longer being considered legal tender, 86% of the cash in circulation was removed during the demonetization in November 2016. The whole procedure took less time—50 days—to finish.