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News~ Currency: Less currency in system will impact fiscal health: Report

2017-06-16 18:06 [ECONOMY] Source:Netword
Guide:CIC growth slowed sharply over the last month from over Rs 30,000 crore a week.

MUMBAI: The slowdown in the pace of growth of currency in circulation (CIC) is a welcome move as more payment transactions go digital, but this comes at a cost, states a Credit Suisse report. This could have fiscal implications and put pressure on bank net interest margins in the coming quarter.

CIC growth slowed sharply over the last month from over Rs 30,000 crore a week to less than Rs 10,000 crore towards May-end.

The slowdown in currency growth has been possible due to a shift to the digital mode of transaction which has grown at a much faster pace than it did before November 2016. But with deposit growth still outpacing credit growth and the incremental credit to deposit ratio still in the 30-40% range, there could be some pressure on Bank net interest margins in the coming quarter. Further, the Reserve Bank continues to absorb liquidity. Surplus liquidity in the system is estimated at Rs 4 lakh crore.

But there is a fiscal cost here. Over and above Rs 15000 crore (0.1 per cent of GDP) loss in its seigniorage income due to lower currency in circulation, the resultant lower RBI dividend would be a cost to the government, though only in FY19.

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