Archive for December 14th, 2018

Post-Demonetisation patterns of deposits: a State-wise analysis

December 14, 2018

Nice bit of research by Tarun Kumar Saxena and Thoppil Bhargavan Sreejith of RBI.  It features in RBI’s monthly bulletin of Dec 2018.

The paper says deposits rose during demonetisation in most states and now people prefer savings deposits compared to term deposits. In terms of cash usage, only two states – Sikkim and Telangana – show a decline in its usage:

Shifts in ownership and tenor of deposits provide valuable insights into payment habits, saving propensities and liquidity preferences. This article has the vantage position of studying these patterns under the impact of a shock – in this case, demonetisation – and its backwash. This event appears to have produced a permanent shift in deposit behaviour with households’ preference shifting to savings deposits and away from term deposits. This suggests a premium on liquidity induced by the shock, partly incentivised by lower rates of returns on term deposits and alternative avenues of saving which combine the benefits of liquidity and returns. While the withdrawal of SBNs caused a shift in payment habits away from cash, this has proven to be short-lived and mean reversion became evident in 2017-18 itself. Only two states show a break from the central tendency, with a decline in cash dependency.

The results presented in this article draw from a census. They point to the fact that deposit and payment habits are inflexible across most states/ UTs in India and tend to return to steady state, even after large shocks. This has implications for banks’ deposit mobilisation strategies and business models.

Lots of tables and colorful graphs. One is noting RBI’s research bulletins is beginning to feature interesting research pieces. Keep up the tempo!


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