The Reserve Bank of India (RBI) on Friday, May 19, declared that the ₹2000 note will be withdrawn from circulation but will continue to be legal tender. However, this is not a demonetisation exercise; instead, it will remain legal tender, and the people can deposit or exchange their ₹2000 notes until September 30, 2023.
It is to be said that this decision is likely to improve the banking system’s liquidity, resulting in lowering short-term browning rates, according to analysts and bankers. The RBI said that the value of ₹2000 notes in circulation is 3.6 trillion rupees, almost $44.02 billion, as of March 31, 2023.
The analysts also anticipated that around ₹50,000 crores to ₹1 lakh crore would enter the system. India’s banking system liquidity surplus has averaged about 600 billion as of May.
Pranjul Bhandari, Chief India Economist at HSBC, said – “About 2.5 to 3 trillion rupees of banking sector liquidity leaks out as currency circulation each year. As such, the market may anticipate some comfort on the liquidity front”.
Why Has The RBI Withdrawn ₹2000 Notes?
The ₹2000 note was introduced in November 2016 with the primary objective of meeting the currency requirement after the ₹500 and ₹1000 notes were withdrawn by the RBI. Since the objective has been fulfilled and other notes, such as new notes of ₹500, are available in adequate quantities, the ₹2000 notes are now withdrawn. However, the printing was stopped in 2018-19.
Impact On Borrowing Rates
- “The weighted average call rate could sustain below the repo rate for the next few weeks”, said Raju Sharma, Chief Investment Officer – debt at IDBI Mutual Fund.
- The inter-bank rate has not surpassed the policy repo rate of 6.5%
- Short-term borrowings rates for government, bulk deposits and corporate borrowings are also likely to reduce.
- Treasury bill auctions can see good demand, according to Rajeev Panwar, Head of the treasury of Ujjivan Small Finance Bank.
The RBI has advised people not to rush to exchange notes. The withdrawal process begins on Tuesday, and the customers can approach banks to deposit or exchange ₹2000 notes till September 30, 2023. However, the RBI has not clarified the status of these notes after September 30, and the notes will be completely ineffective after the said date.