Banking sure how long will stay on

sector is facing with several problems due to the demonetisation. First of all,
banks are not in a position to increase lending capacity. Because of it their
net interest was down during these period. At the time of demonetisation banks
have received enormous amount of deposits. Though they received the deposit
they were not sure how long will stay on their book. The 27 public sector banks
account for 80 percent of these non-performance assets. In 15 of them, GNPAs as
a percentage of advances are more than or close to the capital to risk-weighted
assets ratio. (demonetisation pg 47). There is also question of demand for new
loans. Corporate credit demand has been slow. If banks cannot make loans on
their deposits, then they can either park them with RBI as reserves or invest
them in the government securities. They would prefer to invest the deposits in
government securities through the reserves repo window. It being sovereign
bonds do not pose any capital requirements on banks, give them returns and allow
them to match their asset liability profile. The availability government
security in the market is determined by the borrowing policy of the government
and is not easy to expand without rising fiscal concerns. So their ability to
make loan and earn profit is limited.  Banks
will have to render its service, the cost of these fresh deposit without
earning income on them. It will have a negative impact on their profit.

a recent meeting, the leading banker Deepak Parekh said, there is a deep
conviction that India will emerge as a much stronger force after
demonetisation. The biggest advantage for home-buyers will be lower interest
rates transparency and no large cash payments and thus, we also hope that many
developers now move towards affordable homes. (pg. 49).  Demonetisation exercise has shown that under
special circumstances the government can regulate withdrawal from the banks
with full guarantee of the safety of deposits. In demonetisation exercise the
government has done something that no other country has done, restrictions on
withdrawal of bank deposits.  

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