The reverse flow of Rs 2,000 notes to the banking system will ease liquidity to a certain extent but have little impact on deposit growth or interest rates, senior bankers said.

Most of the Rs 3.6 lakh crore of this high-value banknote in circulation is expected to return but how much will stay back is not yet clear. The credit growth will continue to outstrip deposit growth and interest rates will largely stay where they are, bankers said.

“The return of Rs 2,000 notes will not have any material influence on deposit growth or interest rates. If any, the impact on deposits would be marginal. We are also not sure how much of it is going to stay within the system,” State Bank of India (SBI) managing director Ashwini Kumar Tewari told Indianbankingnews.com. 

There has been no rush so far to either deposit or exchange the Rs 2,000 notes. As part of the withdrawal exercise, the Reserve Bank of India (RBI) has given public time from 23 May until 30 September to either deposit the notes in accounts or exchange them at banks.

“The inflow so far has not been huge for us to sense any material influence on our deposit side. For us, the credit growth is faster than deposit growth and this trend will continue, at least in the short term. The interest rates will stay where they are with the RBI unlikely to change repo rates in its monetary policy this week,” Tewari said.

On 29 May, SBI chairman Dinesh Kumar Khara said an estimated Rs 17,000 crore worth of Rs 2,000 notes had been collected by the lender. While Rs 14,000 has come in form of deposits, Rs 3,000 crore has been exchanged. “Generally, we are about 20% of the market,” he said while interacting with reporters during his visit to GIFT City. 

SBI, Punjab National Bank (PNB) and a few other lenders have clarified that customers can exchange Rs 2,000 notes without identify proof or filling up of forms while the other banks are asking for these processes to be followed.

With Rs 2,000 accounting for only 10.8% of notes in circulation, the general feeling is that the withdrawal of this high-value denomination note will have marginal impact on the economy. It will also have minor impact on the bank deposit growth, which has been lagging behind credit growth.

“The Rs 2,000 notes account for less than 5% of the deposits of the banking system. Even if all of it comes back into the system, it will not make a significant difference. There is ample liquidity in the system, pegged at about Rs 1.65 lakh crore. I don’t think the withdrawal of Rs 2,000 notes will have any impact,” Bank of Maharashtra managing director and CEO AS Rajeev told Indianbankingnews.com. 

The RBI is expected to continue with its pause on repo rate in its upcoming monetary policy on 8 June. 

“Interest rates would depend on inflation but since the RBI has not taken rate action last time, we expect interest rates to be benign. Liquidity is also not a big issue and the RBI always assures banks of providing adequate liquidity in the system," Punjab & Sind managing director and chief executive officer Swarup Kumar Saha told Indianbankingnews.com.

After successive rate hikes since May 2022, the central bank left interest rates unchanged in its last policy in April. The repo rate has gone up by 250 basis points to 6.50% since the RBI started the rate hike cycle to contain rising inflation.

On withdrawal of Rs 2,000 notes, Saha said there will be minor impact on deposit growth. “Undoubtedly, Rs 2,000 notes are getting deposited. But cash is also being withdrawn. The net impact will not be much,” he said.