In a surprising move, the Reserve Bank of India on Friday announced the decision to withdraw the circulation of Rs 2,000 denomination notes by September 30.
The central bank, however, clarified that Rs 2,000 notes will continue to be legal tender.
RBI has stopped printing the highest denomination banknote in 2018-19 (April-March).
The cumulative value of the currency has seen a steady decline in the last few years after the central bank stopped printing new notes.
The cumulative value of Rs 2,000 banknotes in circulation has declined to Rs 3.62 lakh crore, constituting only 10.8% of notes in circulation as of March-end. The total value of the currency note was Rs 6.73 lakh crore at its peak in March, 2018.
“The RBI has clarified that many Rs 2000 notes have reached the end of their expected lifespan of 4-5 years. In addition to this, the central bank’s emphasis on maintaining a clean note policy seems to be a significant factor influencing the withdrawal,” said Arpit Jain, Joint MD, Arihant Capital Markets.Jain believes as the remaining Rs 2000 notes gradually fade away, the Indian economy will see an intriguing transformation.
Finance Secretary T.V. Somanathan said it was a necessary and desirable move because it accelerates the exit of the Rs 2000 notes, especially those that are in storage and not used for transactional purposes.
Given the lower circulation of the currency, and the efforts taken by the government and banks to strengthen the digital payment infrastructure, the impact on the economy as a whole will be minimal, according to Kranthi Bathini of WealthMills Securities.
Like Bathini, Jain also does not see the decision as having any significant impact on the markets.
However, analysts see this as having a positive impact on banks.
“We expect the deposit accretion of banks could improve marginally in the near term. This will ease the pressure on deposit rate hikes and could also result in moderation in short-term interest rates,” said Karthik Srinivasan, senior vice president – financial sector, ICRA Ratings.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
