According to the first study, banks have experienced excess deposit growth in the post-demonetisation period, leading to a fall in interest rates. This, in turn, triggered a flow of money into non-banking financial intermediaries — such as mutual fund schemes, life insurance policies and non-banking finance companies — which saw their balance sheet expand by 14.5% during 2016-17.
The study says that new legislation like the goods and services tax (GST), the Real Estate (Regulation and Development) Act, 2016 (RERA) and the Benami Transactions (Prohibition) Amendment Act, 2016 will promote formalisation of the economy. This will sustain the shift to financial instruments.
The change in investor behaviour is in line with the forecast by former RBI governor D Subbarao immediately after demonetisation. Subbarao had said that real estate, which was a traditional haven for black money, will face a squeeze and households, who have traditionally parked a bulk of their savings in physical assets like gold and dwellings, will be positively biased towards financial savings.
The first study places the excess deposit growth in the banking system during the demonetisation period (ie, November 11, 2016 to December 30, 2016) at 4.0-4.7 percentage points. "In nominal terms, excess deposits accrued to the banking system due to demonetisation are estimated in the range of Rs 2.8-4.3 lakh crore. The unusual cash deposit in specific accounts, which are usually less active, is estimated to be in the range of Rs 1.6-1.7 lakh crore," the report said.
The second study shows how the sustained move towards 'financialisation' has resulted in money moving from bank deposits to the capital markets in search of better returns. According to the report, assets under management (AUM) by mutual funds touched an all-time high of more than Rs 17.5 lakh crore by end-March 2017 and further increased to Rs 20 lakh crore at end-July 2017, boosted by rising stock indices. "Resource mobilisation under equity schemes more than doubled during this period. There were also net inflows in the income/debt schemes in November 2016-June 2017 in contrast to net outflows in November 2015-June 2016," the report said.Besides mutual funds, insurance companies too saw a surge. Premium collected by life insurance companies more than doubled in November 2016. Premium collections by life companies during November 2016 to January 2017 increased 46% over the same period in FY16.
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These reports, authored by senior RBI officials, were published on the central bank's website on Friday. The RBI said that the findings and views are entirely of the authors and should not necessarily be interpreted as an RBI view.