IMPACT OF DEMONETISATION ON BANKS

Abstract

The demonetisation move by the Government of India created multifaceted waves in the country. All the sectors of the economy had faced mixed emotions as a result of this move. One sector of the economy which was affected to a great extent is banking industry. Banks were the channels through which demonetisation was carried out because 86% of the currency in circulation was withdrawn and non-cash transactions were promoted through banks and other allied e-payment activities.  Such attempts of demonetisation were made earlier also by the government but not to this extent and volume. Positively, the liquidity position of the banks was increased due to the enhanced deposit base which was resulted by the deposit of old currency notes in the banks. At the same time, though the Government and Reserve Bank of India took necessary steps to curb the negative impacts of demonetisation, it resulted in accumulation of stressed assets, reduction in the demand for credit and reduction in profitability. Since the economic growth of the country to a great extent is directly related with the efficient functioning of banks, the demonetisation move has at least slowed down the pace of the economic growth and progress of the country.