Demonetisation led to shrinking of bank credit by whopping Rs 61,000 crore

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Demonetisation led to shrinking of bank credit by whopping Rs 61,000 croreA fortnight post demonetisation was announced, the bank credit decreased and how. As per the latest RBI data, demonetisation led demand destruction and saw the bank credit shrinking by a whopping Rs 61,000 crore, or 0.8 per cent, from Nov 08- 25.
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However, the cash ban scheme brought cheers too as the borrowers, including some default accounts, paid back as much as Rs 66,000 crore during the same period.

On November 8, banks received huge inflows as people deposited as much as Rs 4.03 trillion into the accounts, and on December 9, it crossed Rs 12 trillion, putting all calculations of the government into a tizzy.

Analysts supporting the cash recall move initially claimed that at least 20 per cent, or a little over Rs trillion - out of the total Rs 15.4 trillion of the banned banknotes - would not come back to the banking system, helping the Government net a windfall from the exercise whose stated aim is to root out black money and curb corruption.

They now claim that this would be achieved by writing off a similar amount from the balance sheet of the central bank and then transferring the same the Government as surplus. But with the near total return of the banned notes, all these calculations have gone out of the window.

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The outstanding credit of banking system stood at Rs 72.92 trillion as of November 25, according to the Reserve Bank data. The year-on-year credit growth was just 6.6 per cent, down from 9.3 per cent a year ago.

Bankers say there has been a sharp plunge in credit demand as the economy began to feel the adverse effects of the decision to withdraw legal tender status of old currency notes of Rs 500 and Rs 1,000.

The deposits banks rose by 4 per cent in the fortnight to Rs 105.177 trillion, pushing the annual growth to 15.9 per cent as against 9.8 per cent a year ago. In the fortnight to November 11, deposits grew by Rs 1.31 trillion or 1.3 per cent, according to the RBI data.