Packed in a frenzy, following Modi Government's decision to scrap Rs 500 and Rs 1000 notes, people have deposited nearly £6 billion in banks across the country. The State Bank of India has raised around £3.97 billion alone, in deposits following the withdrawal of high denomination notes. SBI chairman Arundhati Bhattacharya said, "We have received deposits of £1.10 billion in savings accounts in one day. Normally, it takes a month to mobilise £800 million of savings deposits."
The bank said collections on Friday last week amounted to £1.75 billion on the back of £2.22 billion, the day before. For exchange, SBI received £72.3 million worth of notes and additional £94.2 million during the weekend. Bhattacharya said demonetisation tend to have a deflationary impact. The surge in low-cost deposits will also, bring down the bank's cost of funds. Taken together, both measures could effectively bring down interest rates. While a huge chunk of the deposits are expected to be withdrawn, bankers say the demonetisation would lead to a sustained reduction in the use of cash. The increase in bank deposits would also lead to a reduction in bond yields and interest rates in the money market. An increase in deposits would compel banks to invest more in government bonds. Given the limited supply of government bonds, there would be an increase in price which translates into a drop in yields.
