Page 10 - Banking Finance June 2023
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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
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