Following the demonetisation of 500 and 1000 rupee notes worth over Rs 14 lakh crore, new notes worth only Rs 1.5 lakh crore have come into circulation so far, says a November 25 Credit Suisse research report.
A large share of this amount has been in the form of new Rs 2,000 notes, which the report says are “not ideal for transacting.”
The new Rs 1.5 lakh crore supplement the Rs 2.2 lakh crore of residual currency, already in circulation.
Estimates say that Reserve Bank of India may take “several months” to replace the 2,203 crore pieces of demonetised Rs 500 and Rs 1,000 notes, worth Rs 14.18 lakh crore.
“To meet the new currency demand, industry estimates indicate that the RBI has already been able to print 150 crore (Rs 3 lakh crore worth of currency). However, these notes being high value and with remaining currency <15 per cent of the total currency, they are unable to provide enough liquidity to transact,” the report said.
The report estimates that 1,000-2,000 crore pieces of the new Rs 500 notes are needed to get back to the “normal transactional volumes”.
Upto November 18, the banks had disbursed Rs 1.03 lakh crore through branches and ATMs, Rs 33,006 crore of which was in exchange with old notes, the RBI said on November 21.
Banks had received Rs 5.44 lakh crore worth of old high denomination currency, Rs. 5.11 lakh crore of which were deposited in banks, the RBI said.
The Credit Suisse report said that the RBI has been able to print only 4-5 crore pieces/day of the new Rs 500 and about 40 crore of these were issued to the banks until last weekend, which translated to only Rs 20,000 crore in value.
“The requirement of notes could be higher if normal demand for currency picks up as and when the government relaxes withdrawal limits and more ATMs become operational. It is possible that the circulation normalises before January 2017 but for that the presses would need to operate at more than 150% capacity utilisation, which might be physically improbable…,” the report said.
“More deposits and restrictions on withdrawal has resulted in a surplus of Rs 6 lakh crore and corresponding amount of government securities can’t be issued. The RBI had to mop up this significant chunk of liquidity as it would have created a problem had it crossed Rs 7-8 lakh crore. The announcement of CRR hike by RBI is a way of sterilisation of liquidity without creating any additional cost,” said Soumyajit Niyogi, associate director, Credit & Market Research Group, India Ratings & Research.