Banks deposit to see sharp decline as withdrawl norms ease: Moody's

With an estimated about Rs 4 lakh crore coming into the banking system within a week of demonetisation, Moody's Investors Service today said the trend of significant inflows will continue for the next 3 to 4 weeks. 

However, Moody's opined that banks' deposit base will witness a sharp decrease when the present restrictions on cash withdrawals are lifted. The rating agency said 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.