India is now undergoing a 'remonetisation'.
The demonetisation move in November 2016 led to a surge of low-cost current account and savings account (CASA) deposits, which together with slower loan growth, has improved the system's funding profile, said Moody's.
In line with the availability of new denomination currency notes, currency in circulation has started increasing again, a process known as “remonetisation.” However, while the process of remonetisation is still ongoing, it has slowed in the past month.
This suggests that some deposits that were added to the system after demonetisation are not a temporary phenomenon but a more permanent accretion to banks' deposit bases. This, coupled with modest loan growth, will support the system's funding profile at a healthy level.
Indian banks' liquidity will continue to be supported by ample holdings of liquid assets on their balance sheets, as growth in their loan assets will remain modest. Their reported liquidity coverage ratios are comfortably above the regulatory minimum even though only a part of their government securities holdings are counted as high quality liquid assets.
Do you know more about this story? Contact us anonymously through this link.