Cash Withdrawals Decline Even After Removal Of Limits: SBI Research

Indians have been withdrawing less cash in the weeks and months since demonetisation, even though withdrawal limits have been phased out by the central bank, according to SBI Research.

Cash withdrawals between March 17-24 have declined to Rs 32,500 crore, from a peak of Rs 52,800 crore for the week that ended January 13, SBI Research said in a report released on Monday. Until January 17, citizens were allowed to withdraw only Rs 4500 per card per day from ATMs. The overall weekly limit from savings accounts was set at Rs 24,000. These limits were eased after January 17 when citizens were allowed to withdraw Rs 10,000 per card per day at ATMs within the overall weekly savings account withdrawal limits. The easing of these limits may explain the spike in January.

Since then, withdrawal trends have been volatile but there has been no evidence of hoarding of cash or a spike in withdrawals. All limits on cash withdrawals were removed on March 13.

While the report doesn't ascribe a reason for the declining cash withdrawals, it estimates that if withdrawals remain in check, banking sector liquidity would remain more than comfortable. Soumya Kanti Ghosh, chief economist at SBI, estimates that demonetisation would lead to permanent liquidity injection of Rs 1.7 lakh crore in the economy.

In a separate report, SBI Research said that this increase in banking system deposits will impact the way the RBI manages liquidity.

The RBI has been considering the introduction of a standing deposit facility (SDF) to absorb surplus liquidity in the system. Such a facility would allow the RBI to manage liquidity conditions without the need for any collateral. A committee headed by RBI Governor Urjit Patel had recommended this instrument indicating that the interest rate will be set without reference to the policy target rate of the central bank.