How come banks saw massive deposits just before demonetisation announcement?

Interestingly, the hike came just ahead of the government's plan to introduce a ban on the old currency

In the four days since Prime Minister Narendra Modi announced a ban on Rs 1,000 and Rs 500 notes, about Rs 3 lakh crore old currency has been deposited in the banking system. Within these four days, since November 10-November 13, the banking system has handled about 18 crore transactions.

Also read: Demonetisation: Govt changes rules for cash withdrawal. Here’s all you want to know

However, as per the data available with the Reserve Bank of India, the monthly bank deposits in September have been the highest in 2 years. In September 2016, an aggregate addition of Rs 5.98 lakh crore over that in August 2016 has hiked the deposits in the banks to Rs 1,02,08,290 crore.

As per a report in The Indian Express, the second biggest mobilisation (in the two-year period) was in July 2015 when the aggregate deposits with SCBs grew Rs 1.99 lakh crore over June 2015.

The growth in deposits in September even on a year-on-year basis, is the highest in at least two years and it grew by 13.5 per cent (Rs 12.11 lakh crore) over that in September 2015.

Image: Indian Express

Interestingly, the hike comes just ahead of the government’s plan to introduce a ban on the old currency. However, Finance Minister Arun Jaitley has rubbished theories of a possible leak of the details of the policy and said that the spike in deposits was mainly due to the payout of arrears of the 7th Pay Commission.

Also Read: Will ban on Rs 500, 1000 notes end black money menace? Here is what Raghuram Rajan had to say

Economists also state that a hike in the numbers is also partly seasonal and a year on year comparison does not give a “baffling” image. Chief economist at HDFC Bank Abheek Barua told the Indian Express that cash gets built-up in the system ahead of the festive season in September and that leads to rise in deposits. He also said that the government’s fertiliser subsidy payout and money related to spectrum auction could have also lifted the deposits.