After demonetisation, when banks were inundated with cash deposits, one frequent question was: how much of these extra deposits would be permanent? Would bank customers withdraw the money after the situation went back to normal, or would they decide not to keep so much cash in hand, and rather keep it in the bank? The answer would determine whether the surge in bank liquidity would continue and, therefore, mean lower interest rates on bank deposits for longer.
The chart shows the year-on-year (y-o-y) percentage rise in bank deposits up to 3 March 2017, the latest date for which Reserve Bank of India (RBI) data is available. Deposit growth with scheduled commercial banks was 9.84% on 28 October, just before the note ban. It moved up dramatically thereafter, as the chart shows, but even on 3 March, the y-o-y growth was 12.2%, well above the pre-demonetisation growth rate.