Demonetisation may have lasting adverse impact: SBI

12 Jun 2017


The country's largest lender, the State Bank of India (SBI), on Sunday expressed concern that demonetisation may continue to slow down of the economy and adversely affect business.

The long-term impact of this move on the Indian economy and the banking sector is uncertain, SBI told institutional investors prior to its Rs15,000 crore share sale through private placement.

The government had discontinued old Rs500 and Rs1,000 banknotes from 9 November 2016, and issued new Rs500 and Rs2,000 currency notes in exchange for the old ones.

The bank said in the Preliminary Placement Document to investors while flagging the 'risk factors' that the document contains forward-looking statements that involve risks and uncertainties, and the financial performance may differ from ''such forward-looking'' statements as a result of certain factors.

According to SBI, increased competition may have an adverse effect on the net interest margin and other income and if the bank is unable to compete successfully, its profitability may decline. The demonetisation move could also result in an increase in compliance costs and higher incidents of fraud.

Post-demonetisation, there has been a surge in the current and saving accounts (CASA) deposits of banks.

The Reserve Bank of India had said in a report that demonetisation led to a rise in the share of CASA deposits in aggregate deposits by 4.10 per cent to 39.30 per cent as of 17 February 2017, resulting in a reduction in the cost of aggregate deposits, and banks have lowered their term deposit rates.

"The demonetisation has and may continue to result in a slowing down of the Indian economy, which may adversely affect the bank's business," SBI said.

Since the merger of its five associate banks and the Bharatiya Mahila Bank, effective 1 April, SBI catapulted into one of the top 50 global banks (up from the 55th position in 2016).

Its balance sheet size is Rs33 lakh crore and it has 24,017 branches and 59,263 ATMs servicing over 42 crore customers.

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