Cash crunch to normalise by February-end: SBI Report

The Dollar Business Bureau

Complete normalcy, after demonetisation, is expected in the next two months and about 75% of the overall value of scrapped bank notes is likely to be back in the system by end of January, according to a report. 

Given the present phase of 'frantic printing' of bank notes, 50% and 75% of the overall value of scrapped notes can be put into supply by December-end and January next year, respectively, said the SBI's research report Ecowrap.

“By the end of February, 78-88% of the currency could be back in the system under the best case scenario in terms of an optimal currency distribution (more small denomination notes)," the report said,

“It looks that within the next two months things would get close to normal, it added. 

However, states such as Andhra Pradesh, Bihar, Uttar Pradesh, Madhya Pradesh, Maharashtra, West Bengal, Haryana, Punjab and Gujarat, which are mainly agriculture-oriented and cash dependent, may face further issues during this period of cash crunch, the report said.

The SBI research report further said that post demonetisation, there has been a 7% rise in the share of small denomination notes in overall currency. 

“This would make money more as a medium of exchange and thus getting accounted instead of used as a store of value,” it said.

“This, in turn, would create a decisive behavioural shift in the preferences of people over the course of time,” the report added.

Sectorally, agriculture is largely cash sensitive and this sector can move to electronic modes, only in a gradual manner. 

The Government and the Reserve Bank of India (RBI) should carefully look at the cumulative withdrawal (a proxy for cash needs) to cumulative deposits ratio in all the states and wherever the ratio is low, they could change the currency supply in those states, it added.