Rs 2.5 Lakh Crore Will Not Come Back Into The System, Says SBI ReportDemonetised notes of Rs 500 and Rs 1,000

The State Bank of India (SBI) released its Ecowrap report today (2 December), in which it argues based on the latest data that Rs 2.5 lakh crore will not come back into the system.

Calculations of late have focused on determining how much money will return (or not) to the system. In view of this, the SBI makes its case for Rs 2.5 lakh crore not coming back thus:

1) The market estimates for the current currency calculations are based on the 16 March data of Rs 14,180 billion (excluding cash with banks). The most recent data is actually from 9 November, which pegs the value of high denomination currency notes at Rs 15,441 billion (excluding cash with banks).

That is a margin of Rs 1.26 lakh crore not being accounted in many calculations.

2) Considering the Reserve Bank of India (RBI) data on the notes exchanged or deposited at banks - twice so far, namely 10-18 November and 10-27 November, we see that there is a significant decline in the notes exchanged/deposited of 17 per cent, down from Rs 605 billion to Rs 501 billion.

In totality, therefore, Rs 8.44 lakh crore have been deposited and exchanged in the banks during 10-27 November.

Based on these two data trends, and by using the 9 November data instead of the 16 March one, the SBI projects the amount of money returning to the system.

Since daily deposits are on a declining trend (as evident from SBI internal data also), we completed the entire analysis using different time periods. For the last 3 working days of November we assume that around Rs 375 billion per day (i.e. 25% less than what came average between 19-27 Nov) has come in and hence the total for 3 days will be Rs 1.12 lakh crores. Hence for the entire period of 10-30 Nov, the total amount deposited at banks will be Rs 9.8 lakh crores (however some unconfirmed reports indicate that this amount is around Rs 11 lakh crores due to the month end activity).
SBI, Ecowrap

By dividing the December month into three time periods, SBI conservatively estimates that Rs 3.3 lakh crore will be coming back into the system, and also that around Rs 1,000 crore will be deposited at RBI counters between 1 January 2017 to 31 March 2017.

These estimates put together show that total money coming into the system in the form of high denomination will be around Rs 13 lakh crores. This means that around Rs 2.5 lakh crores on a conservative basis will not be coming back into the system.

The report provides the following tables:

Rs 2.5 Lakh Crore Will Not Come Back Into The System, Says SBI Report
Rs 2.5 Lakh Crore Will Not Come Back Into The System, Says SBI Report

The SBI also estimates that the government will have an immediate short-term benefit of Rs 500 billion.

As we believe, around Rs 2500 billion will not come back to the system. Here, if we conservatively assume that Rs 1500 billion will not be disclosed by the individuals and this will purely be a extinguished currency liability. Hence Rs 1000 billion will be disclosed under the scheme, which will attract a tax of 50%. So, there will be an immediate short term benefit to the Government will be Rs 500 billion.

The tax being collected as a result can be factored in by the government into the next year’s budget and used for welfare needs, concludes the report.

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