90% of banned money now in banks!

A security guard stands near the main gate of the Reserve Bank of India (RBI) office during a meeting by Indian finance minister Arun Jaitley with the Central Board of Directors of the Reserve Bank of India in New Delhi on March 22, 2015. Finance Minister†Arun Jaitley†said there is no 'disconnect' between the government and the RBI and hoped banks would follow the central bank in reducing interest rates.† AFP PHOTO / SAJJAD HUSSAIN

Contrary to expectations, 90 percent of the demonetised money found its way to banks. Of the Rs 15.4 lakh crore worth of Rs 500 and Rs 1,000 notes that were scrapped as a result of PM Narendra Modi’s November 8 declaration, as much as Rs 14 lakh crore has been deposited in banks.

That means only Rs 1.4 lakh crore worth unaccounted money was lost. The Government expected as much as Rs 3 lakh crore will not be returned as this would be part of black money hoards.

People with money in banned notes were able to manage somehow to deposit all their money in banks. This also means that expectation that RBI will be able to give a substantial dividend to the government will be belied.

However, the Government expects to gain tax revenues from large deposits above the prescribed Rs 2.5 lakh per individual limit. The government also sees gains from small savings that were kept in households being deposited in bank accounts that make these funds productive and safe.

But on the while, the expectation that a lot of black money would have vanished out of the market seems to have been belied. How PM Modi and his Finance Ministe would react to this development is to be seen.