Rs 2,000 note withdrawal: Banks see majority notes from businesses
Data obtained from at least three banks has revealed a significant portion of the Rs 2,000 banknotes that have been deposited and exchanged are attributed to businesses rather than retail customers. This insight underscores the distinct contribution of business entities in terms of the utilization and circulation of these high-denomination banknotes.
The Reserve Bank of India (RBI), on August 1, disclosed that approximately Rs 3.14 lakh crore worth of Rs 2,000 banknotes, constituting around 88 percent of the total in circulation, had been returned to the banking system by July 31. This data illustrates the extent to which these notes have been reintegrated into the formal financial infrastructure.
In response to the influx of Rs 2,000 notes, the RBI introduced an Incremental Cash Reserve Ratio (ICRR) as a measure to absorb surplus liquidity in the banking system. The purpose of this move was to manage the potential impact of the withdrawal of Rs 2,000 notes on the overall liquidity dynamics within the financial ecosystem.
The RBI’s decision to withdraw Rs 2,000 notes on May 19, 2023, as part of its clean-note policy aimed at streamlining the currency landscape and enhancing the efficiency of the monetary system. By discontinuing the issuance of these high-denomination notes, the RBI sought to address various concerns related to counterfeiting, tax evasion, and the potential misuse of large currency denominations.
The revelation that a significant portion of the returned Rs 2,000 notes originated from businesses provides insights into the practical implications of the policy change on different segments of the economy. It highlights the role of businesses in the circulation and usage of currency, shedding light on the broader economic implications of currency reforms.
Indian Overseas Bank (IOB) disclosed that it had accumulated Rs 2,000 notes totaling Rs 3,589 crore through a combination of deposits and exchanges. Among these notes, approximately 40 percent were received from businesses, with a predominant contribution coming from small-scale traders. This data highlights the participation of businesses, particularly small-level traders, in the circulation and utilization of Rs 2,000 notes.
Similarly, UCO Bank, another public sector bank, reported receiving Rs 2,000 notes amounting to Rs 3,471 crore in deposits and exchanges. A breakdown of these notes revealed that 42 percent originated from individuals, while the remaining 58 percent were contributed by businesses. In terms of the actual figures, UCO Bank received Rs 471 crore through exchanges and Rs 3,000 crore through deposits.
The insights provided by these two banks underscore the diverse sources from which the returned Rs 2,000 notes have originated. While IOB’s data emphasizes the role of small-level traders among businesses, UCO Bank’s figures reveal a more balanced distribution between individuals and businesses.
The influx of Rs 2,000 notes into these public sector banks reflects the broader dynamics of currency circulation in the aftermath of the policy change initiated by the Reserve Bank of India (RBI) to withdraw these high-denomination notes. The details shared by IOB and UCO Bank offer a glimpse into the extent of engagement by different segments of the economy in depositing and exchanging Rs 2,000 notes, contributing to the evolving narrative of currency utilization patterns.
City Union Bank disclosed that it had accumulated Rs 2,000 notes amounting to Rs 380 crore through deposits and exchanges. According to an unnamed top official from the bank, around 90 percent of these notes were received from businesses, indicating a significant contribution from the business sector.
Similarly, another undisclosed top official from a public sector bank highlighted a similar trend. According to this official, the majority of deposits of Rs 2,000 notes were coming from businesses, while individuals were primarily engaging in exchanges. The official explained that these high-denomination notes were predominantly held by businesses, and as a result, a pattern emerged where businesses were depositing more of these notes with banks.
The insights provided by City Union Bank and the anonymous public sector bank official corroborate the notion that businesses played a substantial role in the circulation and utilization of Rs 2,000 notes. This pattern aligns with the broader narrative surrounding the withdrawal of these notes and sheds light on the dynamics of currency usage and circulation in the aftermath of the policy change.
The concentration of Rs 2,000 notes among businesses and the subsequent deposit of these notes in banks contribute to the evolving understanding of the impact of the policy on various segments of the economy. The observations made by these bank officials offer valuable insights into the trends and behavior of different stakeholders within the currency ecosystem.
As of August 1, 2023, the Reserve Bank of India (RBI) announced that Rs 2,000 notes amounting to Rs 3.14 lakh crore, equivalent to 88 percent of the total in circulation, had been returned to the banking system by July 31. This development resulted in the remaining Rs 2,000 banknotes in circulation, as of the close of business on July 31, totaling Rs 0.42 lakh crore, according to an RBI press release.
Of the Rs 2,000 notes that were returned, 87 percent took the form of deposits, while the remaining 13 percent had been exchanged into other denominations, as noted in the RBI’s release. This indicates that a significant portion of the returned notes has been deposited back into banks, contributing to the overall reduction in the circulation of Rs 2,000 notes.
Among the major banks, State Bank of India (SBI), the largest lender in India, received Rs 2,000 notes worth Rs 14,000 crore in deposits. Bank of Baroda (BoB) received Rs 10,000 crore worth of Rs 2,000 notes either as deposits or in exchange. Indian Bank reported receiving Rs 7,000 crore worth of these notes until July 26, 2023, according to an interview with Shanti Lal Jain, MD & CEO of Indian Bank, as reported to Moneycontrol on July 28.
Kotak Mahindra Bank, a prominent private-sector lender, received Rs 6,300 crore in Rs 2,000 notes until June 15. South Indian Bank received Rs 888 crore worth of Rs 2,000 notes until June 13, with a significant proportion of the withdrawn currency being deposited by individual customers.
These figures underscore the dynamics of currency flow, usage, and deposit patterns among various banks and segments of the economy. The significant return and deposit of Rs 2,000 notes provide insights into the behavior of businesses and individuals in response to the policy change initiated by the RBI.
The Reserve Bank of India (RBI) initiated the withdrawal of Rs 2,000 notes on May 19, 2023, as part of its clean-note policy. To facilitate a smooth transition, the RBI granted all banks the time until September 30, 2023, for the completion of exchanges or deposits involving Rs 2,000 notes. The central bank also advised banks to cease the issuance of Rs 2,000 denomination notes immediately.
The decision to withdraw Rs 2,000 notes was prompted by the achievement of its objective, with an ample supply of smaller denomination notes available. Notably, the printing of Rs 2,000 notes had already ceased during the fiscal year 2018-19. According to RBI data, the total value of Rs 2,000 denomination banknotes in circulation was Rs 3.62 lakh crore, accounting for 10.8 percent of the overall notes in circulation as of March 31, 2023.
The RBI highlighted that the Rs 2,000 denomination banknote was not commonly utilized for day-to-day transactions. Furthermore, the stock of banknotes in other denominations continued to be sufficient to meet the currency demands of the public. The introduction of the Rs 2,000 note had initially occurred in November 2016 to address the currency requirement following the demonetization of Rs 500 and Rs 1,000 notes.
In a separate move, on August 10, the RBI announced that banks would be required to maintain a 10 percent Incremental Cash Reserve Ratio (ICRR) starting from August 12. This measure was implemented as part of the central bank’s strategy to manage excess liquidity in the banking system following the withdrawal of the Rs 2,000 currency note. The ICRR serves as a temporary mechanism to absorb liquidity during periods of sudden deposit increases.
