Page 10 - Banking Finance June 2023

RBI CORNER

reduced reliance on clearing corpora- on deposit rate hikes and could also depositors. This should ease the
tions and other settlement infrastruc- result in moderation in short-term in- credit-deposit ratio across banks,"
ture could cut down energy consump- terest rates," said Karthik Srinivasan, Kotak Mahindra Bank economists
tion," the Reserve Bank of India's (RBI) senior vice president - financial sector, Upasna Bhardwaj and Anurag Balajee
Report on Currency and Finance 2022- ICRA Ratings. said.
23, released showed.
RBI said the public can deposit Rs Some parts of the notes may be ex-
The energy requirement of a digital
2,000 banknotes into their bank ac- changed for a lower denomination
currency depends on its underlying
counts or exchange them into and thus will be liquidity neutral.
technological stack.
banknotes of other denominations at "Some of the new deposits in lieu of Rs
Contingent on specific details of how any bank branch. 2,000 notes may be temporary in na-
they are configured, CBDCs can be ture and may be drawn immediately in
The Rs 2,000 banknote was introduced
more energy efficient than much of the cash thereafter as part of the precau-
by the central bank in November 2016
current payment landscape, including tionary currency demand and, thus,
in order to meet the currency require-
credit and debit cards. will be liquidity neutral," Emkay
ment of the economy after the
Global's lead economist Madhavi Arora
CBDCs are significantly more energy demonetisation of all Rs 500 and Rs
said.
efficient than current credit card pro- 1,000 denominations banknotes.
cessing centres, in part because the The cumulative value of Rs 2,000
RBI not alarmed by spikes
latter involve energy-inefficient legacy banknotes in circulation has declined to
systems, the report said. Rs 3.62 lakh crore, constituting only in call rate
The CBDC helps curb emissions by nul- 10.8% of notes in circulation as of Recent ungainly jumps in the call
lifying operations such as printing, stor- March-end. The total value of the cur- money rate, representing overnight
age, transportation, and replacement rency note was Rs 6.73 lakh crore at cost of funds for high-street banks, do
of physical currency. its peak in March 2018. not appear to have roiled policy mak-
ers at the Reserve Bank of India (RBI)
RBI to withdraw Rs 2,000 Rs 2,000 notes withdrawal that has stuck to its stance of with-
drawing monetary accommodation.
notes from circulation can increase bank depos-
Instead, the central bank is likely to
Reserve Bank of India announced the its by Rs 2 lakh crore
help iron out wrinkles through provision
decision to withdraw circulation of
With the withdrawal of Rs 2,000 notes of repo windows if it sees signs of con-
Rs.2,000 denomination notes by Sep-
by the Reserve Bank of India (RBI) tinuous market dislocations, sources
tember 30.
bringing back demonetisation memo- aware of the RBI's thinking said.
The central bank, however, clarified ries, economists are expecting bank
"They don't have an overnight repo
that Rs 2,000 notes will continue to be deposits to inch higher by as much as
anymore. WACR (weighted average
a legal tender. RBI has stopped print- Rs 2 lakh crore.
call rate) will keep moving between the
ing the highest denomination
Most Rs 2,000 notes are likely to be SDF (Standing Deposit Facility) and the
banknotes in 2018-19 (April-March).
initially deposited with banks and are MSF (Marginal Standing Facility)," a
The move may be a bit upsetting for expected to improve the deposit base source said. "When the stance is fo-
the common man, but for banks, it is and, thus, system liquidity. cused on withdrawal of accommoda-
largely viewed as positive. tion, the RBI will tolerate that."
"On a net basis, it is likely that depos-
"We expect the deposit accretion of its increase by Rs 1.5-2 trillion. Durable The RBI has, since May 2022, raised
banks could improve marginally in the liquidity could increase by around Rs 1 the repo rate by 2.50 percentage
near term. This will ease the pressure trillion depending on the behaviour of points to restrain inflation.

10 | 2023 | JUNE | BANKING FINANCE