Growth in digital banking slows down, cash withdrawals fall post March 13

Prime Minister Narendra Modi's demonetisation drive was meant to  push digital transactions and make India a 'less-cash' society. 

However, a cursory look at the data provided by the Reserve Bank of India (RBI) show that even though cash withdrawals have fallen, the pace of increase in digital transactions have also mellowed down. 

Cash withdrawals stood at Rs 52,800 crore in first two weeks of January 2017, now stand at Rs 32,500 crore till March 24, 2017. 

From March 10 – March 24, cash withdrawals declined by Rs 12,400 crore, RBI data show. 

Such drop in cash withdrawal is surprising considering that the RBI removed limits on cash withdrawals from March 13, 2017. 

Since January, the average withdrawal in first fortnight has decelerated to Rs 5,400 crore as against average withdrawal in the pre-demonetisation of the same period at nearly Rs 21,000 crore. 

State Bank of India, in a research report said, “It may be also noted that with the implementation of ban on cash transactions of over Rs 2 lakh from April 1, further decline in cash withdrawals may be a possibility.”

In March, both cash withdrawals and digital transactions have slowed down.  

RBI data show that electronic payment system stood over Rs 105.61 lakh crore with volumes of 707.9 million. Though volume have declined, in value terms digital transactions have increased. 

In the month of February 2017, electronic payments stood over Rs 92.59 lakh crore with volumes of 763 million. 

Transactions from IMPS have fallen to 56.2 million in March 2017 as against 59.7 million volumes in February 2017. On value basis, IMPS has fallen to Rs 45,850 crore as against Rs 48,220 crore in February 2016. 

Despite decline in volumes, mobile banking transactions have risen to Rs 1.19 lakh crore as against February 2016's Rs 1.08 lakh crore. 

Volumes in mobile transactions have gone down to 48.5 million compared to 56.2 million of February 2017 and 64.9 million of January 2017. 

Another surprising development was debit and credit card transactions at Point of Sales (PoS) machines. Three months from Nov’16 to Jan’17, banks said to have set-up 5.04 lakh PoS machines.

However, transactions on PoS machine have been declining since January 2017. 

As on March 26, 2017, debit and credit card transactions together stood at Rs 34,390 crore from Rs 39,150 crore in February 2017 and Rs 48,120 crore in January 2017. 
Volumes of debit and credit card transactions have also declined to 190.1 million in March from 212.3 million of February 2017 and 265.5 million of January 2017. 

SBI report said, "While it may be difficult to ascribe a reason, our estimates indicate that there would be a permanent liquidity injection of least Rs 1.7 lakh crore / 1.1% of GDP post demonetisation. This data is a reflection of the extent of formalisation of the economy post demonetisation."

SBI added, “This declining trend in cash withdrawals will also have repercussions on RBI liquidity management policy.”

Moody's Investor Services recently in its report said, “Although, there has been rise in banks deposit on the back of this note ban drive, Moody's expects it to increase by only around 1% to 2%, compared to before demonetisation, with cash remaining the dominant means of retail transactions.”