Demonetisation: Banks have replaced less than 10% of value of demonetised notes so far, still a long way to go

Post demonetisation, the currency that has been released by banks through exchange of old notes and cash withdrawals adds up to around 1.36 lakh crore. This is less than even 10% of the 14 lakh crore that has been deposited under the Prime Minister Narendra Modi’s war on black money.

Meanwhile, banks have also circulated Rs 1, 03,316 crore into the system through withdrawals by account-holders and another Rs 33,006 crore by exchanging old notes. The withdrawal includes the amounts taken out through branches and ATMs (automated teller machines).

Soumya Kanti Ghosh, who is the chief economist at the State Bank of India, feels that one way to look at the cash requirement in the economy is to use the yardstick of two months' consumption needs.

“If this were to be taken as a measure, around Rs 10 lakh crore of new currency would need to be printed. The deposits lying in banks are temporary partly because of the restrictions on withdrawal and partly because of the shortage of currency notes," he told TOI.

So, if a person is to take Rs 10 lakh crore as the additional currency required, it would mean that the total currency in circulation would come down by over Rs 4 lakh crore. Part of this would be money lying outside coming into banks as deposits and partly because of unaccounted notes getting extinguished.

The new notes on the other hand have been released at a quantity of about a seventh of the the required estimate. What has eased the shortage is the fact that old high-denomination notes continue to be in circulation in some segments. Also, electronic transactions have grown three times, helping offset the shortage.

If banks keep pumping in new notes at the same pace, it would take nearly seven more weeks to meet the estimated cash requirement of Rs 10 lakh crore.

(image: IndiaTimes)