POSITIVE IMPACT: Increase in CASA deposits for most banks; lending rates to drop further
NEGATIVE IMPACT: MFIs, NBFCs miss collection cycles
NUMBER GAME: Banks have received deposits in excess of Rs 6 trillion since the note ban
Demonetisation drive may puncture the earnings of most banks this quarter. Many staffers who have been handling Rs 500 and Rs 1000 note deposits, exchange and withdrawals, “revenue-yielding” operations i.e vending loans and cross-selling investment products have taken a backseat in most banks.
Siddharth Purohit, senior banking analyst at Angel Broking, a retail stock brokerage told media,
“The earnings of banks may take a hit in the third and fourth quarter.” “We may not see loan book growth as most banks are busy facilitating the demonetisation process. They’re not aggressively selling a lot of credit products now. That apart, the SME and real estate sectors, to which most banks lend a significant part of their book – are in a state of lull.”
However, demonetisation will help banks to improve their CASA (current account, saving account) deposits, but not many analysts expect this money to remain in the bank for long. Flushed with cash now, banks would be forced to cut rates – on both deposits and lending – over upcoming few weeks. This, in turn, may spur credit off take in the banking sector – towards the first quarter of next fiscal.
NBFCs and microfinance institutions (MFIs) are have got a hard hit as their collection cycles which was mostly in cash have gone awry since November 8. Most NBFCs and MFIs have announced ‘collection holidays’ till such time there’s sufficient money in the system.