Demonetisation effect on

banks
 The Biggest Beneficiaries
BANKS

Yes, the biggest beneficiary from

this policy will be the banking
sector.
The reason behind being called the
beneficiary is very obvious because
as lot of people were depositing cash
in the banks, there will be a lot of
liquidity with the banks.
 Benefit

As the deposits with the

banks will increase so will
increase the CASA, which
will increase the Net
Interest Income and the
Net earnings of the banks.
 What is CASA?
CASA is abbreviation of Current
Account Savings Account. It is the
ratio which indicates how much of
the total deposits with the bank are
in the current account and savings
account. In a simple language, the
deposits lying in the savings and
current account are CASA.
 How does a higher CASA indicates
acche din for banks?

As stated above higher CASA means large

amount of deposits are in current and
savings account.
This way the banks get funds at no or very
low cost (interest).
Banks do not pay interest on the current
account deposits and pays a very low % of
interest on savings account deposits.
Hence, it is a good measure to get deposits
at no or very low cost.
The banks are expected to make a good profit which would eventually
benefit the common men. How?

As the banks get a lot of liquidity in

their hands, they will lend the money
to the people at a lower rate of
interest. Hence, the interest rate on
borrowing will lower down.
Further, as the CASA increases the
banks will not need any other way to
get money(loan from RBI or other
commercial banks).
 Future Market
From the stock market point of view,
yes, it can be considered as a good
opportunity to invest in Banking
stocks for long term.
 Illegal activities
Some banks come under scanner for alleged
discrepancies and irregularities in the wake
of the demonetisation drive.Eg (Axis to SBI )

According to a recent report by the income

tax department, most banks have indulged
in money laundering after the Narendra
Modi government announced ban on high-
value bank notes of Rs 500 and Rs 1,000
from November 8 midnight.
 Many banks accepted and exchanged
the old currency notes at a premium
and parked large deposits in multiple
accounts, the report added.
Moreover, several accounts have been
opened without following Know-Your-
Customer norm, the report pointed out.
Besides, more than 2,000 new
currency notes of Rs 2,000 were
withdrawn from the bank illegally.
 The Other Side: How Demonetisation Affected
Bank Employees

The challenges faced by a small segment of

the population, the bank employees, have
been seemingly ignored and sidelined.

Bank officials across the nation were giving

their best to ensure a smooth transition.
Right from the day after the announcement,
the bank officials have been putting in extra
hours every day to try and conduct as many
transactions as possible.
 Dark Side/ Stress
The employees need to cross-check and
close every single transaction before calling
it a day. They were not only working
overtime but were sacrificing their weekends
and holidays, family time and sleep.

There has been rise in medical complaints in

the last few days among bank staff
.Stretched working hours and the tense
atmosphere is taking a toll on their health.
 Impact of
demonetization on NPA
What is NPA ?
A nonperforming asset (NPA) refers to a
classification for loans on the books of
financial institutionsthat are indefaultor are
in arrears on scheduledpaymentsof principal
or interest. In most cases, debt is classified as
nonperforming whenloanpayments have not
been made for a period of 90 days.
 IMPACT
There is a highly possibility that NPAs
could come down now that there is money
in people's savings account.

NPAs will rise. Withdemonetization,

huge amount money flowing into banks.
Lowering interest rates(which is largely
hopeful) can bring burden on the borrower
and might start paying the loan back.
 Examples
Before Demonetization
If Mr. X had a NPA of Rs. 50000 outstanding and
his installment/arrears is Rs. 20000 and there
was no money in his saving/current account
then banks couldn't have done anything.
After Demonetization
Mr. X now puts in Rs. 10000 for exchange
purpose and withdraws only Rs. 4000, the bank
now square off the Rs. 6000 from the
saving/current account to the NPA loan
installment/arrears.
 THANK
YOU