The Reserve Bank of India’s decision to withdraw ₹2,000 notes could boost banks’ deposit base and liquidity in the money markets by anywhere between ₹40,000 crore to ₹1.1 lakh crore, even if just about a third of these heavily hoarded high currency notes are flushed out by the exercise, according to a research report.
A part of those notes which are being hoarded to avoid taxes on unaccounted incomes could be funnelled into assets like real estate and jewellery, the report reckons. The central bank has said that the notes will remain legal tender, but has asked people holding such notes to deposit or exchange them by September 30 this year.
With no clarity yet on what the status of these notes will be after that deadline, a flurry of exchanges is expected over next four months, which could “rekindle memories of Demonetisation” from 2016, QuantEco Research said in a note. Estimating the stock of ₹2,000 denomination banknotes to be around ₹3.7 lakh crore or 1.3% of GDP — equivalent to 10.8% of the cash in circulation at the end of March — the note said that banks’ deposit base would be bolstered if all of those notes came back by the stipulated deadline.
