Banks stand to gain the most from the demonetisation efforts due to the impetus it provides for people to enter the formal banking system, according to Moody’s Investors Service.
The demonetisation scheme could result in bank deposits increasing by about 1-2 per cent once the volatility subsides.
“The withdrawal of the Rs.500 and Rs.1,000 denominations may provide a strong impetus to greater use of the formal financial system — the banking system — for the intermediation of commercial transactions, especially in the retail segment,” Moody's Investors Service said in a note.
“The government move has meant that a large proportion of the population will have to access banking channels at least once, so as to convert their existing holdings into the new legal tender,” the note added.
Customers foreverMoody’s points out that studies have shown that first-time users of banking systems tend to keep using them once they start. “Therefore, we expect a material proportion of the first-time or very infrequent users to become more sticky customers of the banks.”
This could benefit banks through an increase in low-cost deposits, although this benefit may not be apparent in the short-term, the note added.
Although banks have seen a sharp increase in their deposit levels over the last few days, this is likely to reverse once cash availability increases and restrictions on cash withdrawals go back to normal.
“Once this volatility subsides and stability is achieved, possibly around three months from now, we estimate that bank deposits will increase by around 1-2 per cent compared to what they would have been without the demonetisation scheme,” the note said.