Withdrawal Of INR 2000 Notes Is a Non-Event In India, Says SBIThe report also said that the digital payments in India has been witnessing new milestones, in both value and volume terms
ByTeena Jose•
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The State Bank of India (SBI) on Tuesday in its latest Ecowrap report stated that the withdrawal of INR 2000 bank notes is likely to be a non-event as India has adopted digital payments on a mass scale. It also added that in digital payments, India has been witnessing new milestones, in both value and volume terms, which indicate the robustness of our payment ecosystem and acceptance.
The central bank last Friday announced the withdrawal of INR 2,000 denomination banknote but said it will continue to remain a 'legal tender' before it is phased out in a time-bound manner. To complete the procedure in a timely manner and to provide adequate time to citizens, all banks have been asked to provide a deposit or exchange facility for INR 2,000 banknotes until September 30, 2023.
According to SBI Research, the central bank RBI has ensured that the share of the high-value INR 2000 note moved down gradually, thus paving the way for the removal from circulation altogether. Adding on, the INR 500 note has reportedly become the major bank note among the masses and constituted 73.3 per cent of the total value of currency notes as of March.
The RBI also revealed that the total value of these banknotes in circulation has declined from INR 6.73 lakh crore at its peak in March 31, 2018 (37.3% of notes in circulation) to INR 3.62 lakh crore constituting only 10.8% of notes in circulation on March 31, 2023. Furthermore, about 89% of the INR 2000 denomination banknotes were issued prior to March 2017 and are at the end of their estimated life span of four-five years.
"We believe that almost the entire amount of INR 3.6 trillion will come back to the banking system. Of the remaining INR 3 lakh crore, if we assume MPC of 0.7,INR2-2.1 lakh crore would be spent by the consumers (either direct purchase or by exchanging it with smaller denominations notes), approximately INR 1 lakh crore is destined deposits in banks," said the SBI report.
"Decoding exchange/deposit dynamics, we understand, banks will already be holding some of these notes in their currency chests, thus the impact on deposits will be limited," it further noted.
