Not Much Impact On Liquidity Owing Rs 2,000 Notes’ Withdrawal: SBI

There will not be much impact on the liquidity owing to the withdrawal of Rs 2,000 notes, as the amount deposited with the banks would be withdrawn in smaller denominations late, said the State Bank of India (SBI) in a report on Monday.

In a special report, the bank stated that some amount would also come into a loan account and loans create client deposits and balances as every loan given out by any bank lands up in a client banking account within the banking system. 

“Lending does however result in a very small secondary impact on banking liquidity surpluses as the deposits created by lending require CRR maintenance,” it added.

Notably, the total supply of the securities including G-sec, SDL and T-bills is around Rs 17.65 lakh crore. 

“Assuming 11.5 per cent of deposit growth and actual SLR investments of 28 per cent, there will be the demand of Rs 6.0 lakh crore from banks,” the report mentioned.

Furthermore, taking into account the share of other entities in total outstanding securities, the total demand would be around Rs 15.6 lakh crore. 

“If we consider that loans will also create additional deposits the need for OMO would still be lower than the market consensus upto Rs 2.5 lakh crore,” SBI stated.

It also stated that around Rs 55,000 crore could be withdrawn by the public from Rs 92,000 crore saving bank deposits to be made cumulatively through Rs 2000 notes. 

This should give a consumption boost along with increasing the velocity of money, the bank mentioned.

Considering the MPC of this Rs 55,000 crore at 0.7, SBI expects that the private final consumption expenditure (PFCE) might increase by Rs 1.83 lakh crore through the multiplier effect. 

“Considering that ratio of PFCE to GDP at constant prices is around 58 per cent, we may expect Q1 FY24 GDP growth at 8.1 per cent with an upward bias due to the impact of this Rs 2000 note withdrawal event…this reinforces our projection that FY24 GDP could be higher than 6.5 per cent, per the RBI estimate,” SBI said,