Report Explains How Rs 2,000 Withdrawal Will Supercharge India’s Economy

The report highlighted the impact of the withdrawal on deposits

The State Bank of India (SBI) has released a report explaining how the recent withdrawal of Rs 2,000 notes could boost bank deposits, repayment of loans, and even the GDP of the country. The report said the withdrawal was a precision strike and suggested that UPI could be the new Rs 2,000 note. 

According to SBI, the share of Rs 2,000 notes in value terms was at 10.8% as on March 2023. Around 1.8 lakh crore of Rs 2,000 notes were returned to the system where 85% or Rs 1.5 lakh crore were received as deposits and the rest were exchanged for smaller denominations.

“Even as Rs 1.5 lakh crore of Rs 2000-rupee notes has been deposited at the banks …This implies that the amount spent/exchanged by people over the counter is ~ Rs 60,000 crore (Rs 1.5 lakh crores net of Rs 90,000 crore decline in currency in circulation ~Rs 60,000 crores) …this could also result in a bank deposit boost, repayment of loans boost, consumption boost, RBI retail CBDC boost and a possible GDP boost…,” the report stated.

The report said that the “precision” strike” “hits the right notes on multiple counts, taking pressure off substantially from near war-like quest for deposits from banking system while also smoothening the bias for higher interest rates going forward”.

It added that the GDP growth in Q1 FY24 is expected to be 8.1% with an upward bias due to the Rs 2,000 note withdrawal from circulation. “This reinforces our projection that FY24 GDP could be higher than 6.5%,” the report said.

Highlighting the impact of the withdrawal on deposits, the report stated that Current Account and Savings Account (CASA) deposits are likely to rise and that ASCB data suggests that there has been an increase in total deposits of Rs 3.3 lakh crore.

The Rs 2,000 note withdrawal could also result in 30% of the deposits or Rs 92,000 crore going to loan repayments. “Interestingly, despite repayments getting frontloaded, credit growth continues to remain quite strong,” the report said.

In terms of consumption, the withdrawal might lead to an uptick in consumer demand, which could be “frontloaded by Rs 55,000 crore”.  

The SBI report also underlined that UPI has effectively “replaced much of the currency in circulation”.