Demonetisation: Bank credit plunges by Rs 61,000 cr in post note ban fortnight

Mumbai: The demand destruction unleashed by the 8 November demonetisation drive saw the bank credit shrinking by a whopping Rs 61,000 crore, or 0.8 per cent, during the fortnight to 25 November, show the latest RBI data.

 Demonetisation: Bank credit plunges by Rs 61,000 cr in post note ban fortnight

Representational image. Reuters

But at the same time, the note ban also had a positive effect, as borrowers, including some default accounts, paid back as much as Rs 66,000 crore during the same period.

In sharp contrast, during the same fortnight, banks received huge inflows as people deposited as much as Rs 4.03 trillion into the accounts, which as of December 9 crossed Rs 12 trillion, putting all calculations of the Government into a tizzy.

Analysts supporting the cash recall move initially claimed that at least 20 per cent, or a little over Rs 3 trillion - out of the total Rs 15.4 trillion of the banned banknotes - would not come back to the banking system, helping the Government net a windfall from the exercise whose stated aim is to root out black money and curb corruption.

This, they claimed, would be achieved by writing off a similar amount from the balance sheet of the central bank and then transferring the same the Government as surplus. But with the near total return of the banned notes, all these calculations have gone out of the window.

The outstanding credit of banking system stood at Rs 72.92 trillion as of 25 November, according to the Reserve Bank data. The year-on-year credit growth was just 6.6 percent, down from 9.3 percent a year ago.

Bankers say there has been a sharp plunge in credit demand as the economy began to feel the adverse effects of the decision to withdraw legal tender status of old currency notes of Rs 500 and Rs 1,000.

This plunge in bank credit came after another Rs 59,000-crore dip in the previous fortnight to 11 November, showing the initial impact of the November 8 announcement to
decommission high value notes.

The deposits banks rose by 4 per cent in the fortnight to Rs 105.177 trillion, pushing the annual growth to 15.9 percent as against 9.8 per cent a year ago. In the fortnight to November 11, deposits grew by Rs 1.31 trillion or 1.3 percent, according to the RBI data.

Updated Date: Dec 13, 2016 14:23:24 IST