Demonetisation 2016: How is RBI adjusting its Balance Sheet? Some initial trends..

RBI released its Weekly Statistical Supplement for week ended 25 Nov 2016. It has RBI balance sheet and Reserve Money data for week ended 18 Nov 2016 and Money Supply data for 11 Nov 2016.

What are the initial trends?

In the RBI Balance Sheet, we see a marginal rise of Rs 8539 Crore. The major changes are mainly on items in Liabilities side and marginal ones in Assets (as expected):

Reserve Bank of India (in Rs Billion) 2016 Variation
Nov. 11 Nov. 18 Week
1 Notes Issued 17644.68 14037.47 –3,607.21
1.1 Notes in Circulation 17644.51 14037.13 –3,607.37
1.2 Notes held in Banking Department 0.17 0.34 0.16
2 Deposits
2.1 Central Government 1.01 1.01
2.2 Market Stabilisation Scheme
2.3 State Governments 0.42 0.42
2.4 Scheduled Commercial Banks 4130.3 4052.12 –78.18
2.5 Scheduled State Co-operative Banks 35.85 35.71 –0.14
2.6 Other Banks 244.57 245.66 1.09
2.7 Others 1500.69 5051.28 3550.59
3 Other Liabilities 9254.94 9474.18 219.24
TOTAL LIABILITIES/ASSETS 32812.46 32897.85 85.39
1 Foreign Currency Assets 23193.02 23462.06 269.04
2 Gold Coin and Bullion 1367.94 1367.94
3 Rupee Securities (including Treasury Bills) 7563.14 7563.83 0.69
4 Loans and Advances
4.1 Central Government
4.2 State Governments 21.44 31.09 9.65
4.3 NABARD
4.4 Scheduled Commercial Banks 477.3 314.03 –163.27
4.5 Scheduled State Co-op.Banks
4.6 Industrial Development Bank of India
4.7 Export- Import Bank of India
4.8 Others 56.78 41.35 –15.43
5 Bills Purchased and Discounted
5.1 Commercial
5.2 Treasury
6 Investments 23.2 23.2
7 Other Assets 109.64 94.35 –15.29

Liabilities

  • We see Notes declining by Rs 3.06 lakh crore. This is on expected lines
  • The CRR deposits of banks decline by declines which is a puzzle. As Demand and Time deposits have surged in banking, this should have risen as well.
  • This decline in Notes will have to be adjusted in other liabilities.
  • We see most of this adjustment happening in Deposits – Others  (+ 3.55 lakh crore) and in Other Liabilities +0.21 lakh crore).
  • The next question is why Deposits-Others? We thought this rise will come in Other Liabilities (where there are capital and reserves).
  • For this, we need to see break up of Deposits-others which is not available in WSS. Thus, We picked up data from RBI Annual Report:
    2014-15 2015-16
    (c) Deposits- Others 1238.57 769.82
    (i) Administrators of RBI Employee PF A/c 40.75 43.8
    (ii) Depositor Education and Awareness (DEA) Fund 78.75 105.85
    (iii) Balances of Foreign Central Banks 14.71 15.21
    (iv) Balances of Indian Financial Institutions 4.33 11.43
    (v) Balances of International Financial Institutions 1.45 3.2
    (vi) Mutual Fund 0.01 0.01
    (vii) Others 1,098.57 590.32

 

  • From 2014 onwards, Reverse Repo transactions done by RBI is also included in this Deposits- Others Category. As per data, we know that on 18 Nov 2016 this amount was Rs. 1.02 lakh crore. These have risen as banks have surplus liquidity.
  • What accounts for the remaining almost 2.5 lakh crore? My best bet is that most of this is included in  Depositor Education and Awareness (DEA) Fund. This fund was created by RBI in the year 2013- 14 for promotion of depositors’ interest and for such other related purposes.
  • So, much of the decline in Notes Liabilities is adjusted by Reverse Repo transactions and most likely DEA Fund. There is a marginal rise in Other Liabilities.
  • I think with this initial data, we can suggest that there are little chances that Government will take the cancelled liabilities as profits. Unless, things change in future of course.

Assets Side:

  • There is a rise on Forex Assets by Rs 26904 Crore
  • There is a decline in Loans and Advances by Rs 16327 Crore. This is mainly due to decline in Repo and MSF Transactions by RBI.

Overall, decline in Notes is most likely adjusted in the DEA Fund. This could be the trend in future as well..

6 Responses to “Demonetisation 2016: How is RBI adjusting its Balance Sheet? Some initial trends..”

  1. G Says:

    You are not accounting for the variable rate reverse repo. If you include that, it will account for the reduction of 3 trillion rupees in notes in circulation

  2. Amol Agrawal Says:

    Hi G…I did account for Rev Repo Variable Rate Auctions as well. On 18 Nov both fixed rate and variable rate rev repo are Rs 8255 cr and Rs 93583 Cr..

    • G Says:

      Hi Amol,thanks for the response. I may be missing something here as I am looking at it cursorily. This is how I am approaching it. I was looking at Table 8 from RBI weekly statistics bulletin, where, in column 9, we get the effect of absorption. I agree with you that they did1 trillion of rev repo on Nov 18. But for our purposes we are interested in where the decline in notes in circulation is accounted for. I see a total of 5.7 trillion rupees from Nov 13 to Nov 19. I think what we should look is the cumulative effect of the week nov 14-nov 19. we can ignore Nov 13, because it was already there in the previous release. I would say a total of 5.1 trillion was sucked out of the system from 14th to 19th. Some of this could be reversing old repos but a lot would be sucking the excess 3.6 trillion coming into the system from the streets.
      I love the work you are doing in this blog. I see some really shoddy reporting out there. More of those people should be reading your blog. Cheers!

      • Amol Agrawal Says:

        Hi G…Thanks a lot for the kind words. You are actually right. I forgot these are 3-5 day rev repo. I will rework the math and get back..

      • G Says:

        All good Amol. Can I hit you up on gmail so I can ask some questions about the effect of this, particularly about OMOs and forex?

  3. Amol Agrawal Says:

    Hi G. Hope you saw the revised post. Thanks for pointing the error. Do send me the qs..Though not sure whether I can answer them but will surely learn from you..:-)

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