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Reserve Bank extended the withdrawal limit

Written by Aravind   |   Posted: 11/29/2016 11:14 AM IST

The Reserve Bank of India (RBI) has on Tuesday extended the withdrawal limit of cash from bank deposit accounts. The decision was taken as certain depositors are hesitating to deposit their money into the bank accounts as the current limits on cash withdrawals from accounts is not adequate.

"As it is impeding active circulation of currency notes, it has been decided, on careful consideration, to allow withdrawals of deposits made in current legal tender notes on or after November 29, 2016 beyond the current limits; preferably, available higher denominations bank notes of Rs 2000 and Rs 500 are to be issued for such withdrawals," the statement said.

“One, as soon as enough new notes are printed (i.e. remonetisation is complete) and withdrawal limits raised, much of the new deposits could leave the banks. Two, the RBI would have had a preference to suck out temporary super-normal liquidity increases. And since Saturday’s incremental CRR hike, the banks will also not be earning interest on the additional deposits, given CRR is non-remunerative. Under these circumstances, if the RBI believes than lending rates need to fall over time, in order to support growth and recovery, (especially given some growth drag following demonetisation), cutting the repo rate may provide a nudge. We are expecting a repo rate cut in the December 7 policy meeting,” said Pranjul Bhandari, chief India economist, HSBC.

“We expect the RBI now to cut rates aggressively in December up to 50 basis points. Our expectation of a sub 3.5 per cent inflation rate in November/ December now looks sacrosanct. This will be consistent with a lower term structure of interest rates that will enormously benefit the banks at least in treasury gains for better provisioning when they have been entrusted with the onerous task of mobilising the entire accretion in yearly deposits in less than 2 months. Additionally, the loss to GDP will significantly widen the output gap, a perfect foil for cutting rates, in RBI words. Clearly, the banking sector is in challenging times,” said Soumya Kanti Ghosh, chief economic advisor, SBI.

By Premji

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Tags : demonetisation  Reserve Bank of India  cash withdrawal limit  repo rate  

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