Though banks are celebrating the present mad rush at their branches with the government’s demonetization as this would strengthen their deposits base to an unimaginable extent, at a time they were facing big financial crisis, market analysers are cautioning that the trend may not goes for a long.
Moody’s Investors Service today cautioned that the trend of significant inflows may not continue beyond 3 to 4 weeks more. It felt that this deposit base is bound to witness a sharp decrease when the present restrictions on cash withdrawals are lifted.
However, giving some relief to banks, Moody predicts that bank deposits are likely to increase by about 1 or 2 percent compared to what they would have been before demonetisation.
Moody’s said the expectation of a relatively low level of increase is based on the assumption that the role of cash as a medium of transaction will not change materially in the near term. However, as the cash intensity of the economy minimises over the medium term, bank deposit levels may benefit in a more meaningful way.
It said the withdrawal of these high-value notes may provide a strong impetus to greater use of the formal financial system for the intermediation of commercial transactions, especially in the retail segment. Moody’s said it expects a significant proportion of first-time and very infrequent users to become more sticky customers of banks.
