Forwarding a news report of 'this day, last year'.
I am sure you will find this amusing.
Rs 500, Rs 1,000 note rumours, not polls, behind cash surge: SBI
http://timesofindia.indiatimes.com/business/india-business/Rs-500-Rs-1000-note-rumours-not-polls-behind-cash-surge-SBI/articleshow/51736091.cms via @timesofindia
Rs 500, Rs 1,000 note rumours, not polls, behind cash surge: SBI
Mayur Shetty| TNN | Apr 8, 2016, 05.33 AM IST
Raghuram Rajan. (File photo)
MUMBAI: The State Bank of India has said that RBI governor Raghuram Rajan's contention that polls are driving the surge in cash in the hands of the public does not explain the current spike, which is higher than other election years. The bank has said in a report that it is rumours of demonetization of Rs 500 and Rs 1,000 notes that is possibly driving people to withdraw cash in order to deploy them in 'safe' assets.
"We have seen even bigger elections in earlier years but the increase in currency with the public has not been that high. This time it is hurting our deposit growth and, after a long time, our deposit growth is less than advances," said SBI chairman Arundhati Bhattacharya. She said the reason for the cash surge was still a mystery. Some have attributed it to the jewellers' strike, which is preventing cash deposits. However, Bhattacharya said the strike was recent and the increase in cash has been seen for some time.
In the research report, SBI chief economist Soumya Kanti Ghosh said that the common perception is that FY17 being an election year, people are hoarding cash. "However, had this been true, even FY14 should have shown the similar trend. In fact, that year witnessed a decline. Also in FY12, when Punjab and Uttar Pradesh went to polls, currency in circulation actually witnessed a significant decline. Does this mean that elections in Punjab and Uttar Pradesh are relatively more transparent than say other states like Bihar (reason for the possible increase in currency in 2015)"?
The report adds that elections may be only a small reason, but the bigger factor could be the trend in demonetization. "There are suggestions in public domain and even analysis that are suggesting that higher denomination notes may be replaced. We believe as a result of that people may be using more of high-value currency to purchase safe haven assets," the report said.
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These are due to less interest given by the banks for any type of savings.Binit Ambastha
Bhattacharya, however, did not have an opinion on demonetization and said that was something that was picked up by the research department from what is being talked about in the environment.
The report warns that if demonetization is being contemplated, a road map needs to be created. "It needs to be done in steps and be balanced with creation of necessary electronic and digital infrastructure in the country, coupled with creating awareness and financial literacy for ensuring that the man on the street is not put to undue hardship," the report said.Going into the advantages of demonetization, the report said that demonetizing Rs 500 and Rs 1,000 currency notes will bring a huge amount of the funds kept in these denominations into the banking channels and will facilitate a reduction in domestic black money transactions. But this would also be a headache when it comes to logistics. "At the branch level, the cost of handling cash would zoom and there would be complete chaos as the funds kept in these denominations will be flushed into the banking channels," the report said. The report goes on to say that introduction of a Rs 5,000 note will also not solve the problem and would continue to result in ATMs running dry several times a day.
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