Bank deposits will spike: How Rs 500, Rs 1000 note ban will impact economy

Here is a quick compilation of how leading brokerages and research houses interpret the development

In a bid to clampdown on black money, the government withdrew Rs 500 and Rs 1,000 notes from circulation with immediate effect. Reserve Bank of India (RBI) data suggests that the proportion of Rs 500 and Rs 1000 notes were 86.4% of total value of notes in circulation on March 31, 2016, amounting to Rs 14 trillion. The growth rates in these notes were 76% and 109% respectively in the last five years versus overall currency in circulation going up by 40%, points out a Citigroup note.

Here is a quick compilation of how leading brokerages and research houses interpret the development, and its impact on the economy and sectors.

NOMURA

First, while citizens will be inconvenienced in the short term, this is a big medium-term positive in the government's effort to crack down on black money and corruption. Second, as the old currency notes are deposited with banks, bank deposit growth will witness a pickup and currency in circulation will moderate - a positive for banking sector liquidity. 

Third, as rural households open new bank accounts to deposit old notes, this may also end up giving a boost to the government's financial inclusion thrust. Fourth, since black money played a role in real estate transactions, this crackdown is very likely to hurt the real estate market, which is already reeling under high inventory in top tier cities such as Mumbai and Delhi. Fifth, as some of the black money is brought under legitimate channels, the government's tax revenue collections will get a boost. 

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