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A study on the impact of demonetization on Indian financial sector
Shamseer abdul rehman Researcher of ; demonetization on indian financial sector Student of ; markazul hidaya Islamic science, kodagu ,karnataka

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INTRODUCTION

Demonetization is the act of removing the current currency from the economy and replacing it with the new one. India has demonetized before: First time on 12th Jan 1946 (Saturday),second time on 16th Jan 1978 (Monday), Third time on 8th November2016 (Tuesday).In 2016, the Indian government decided to demonetize the 500- and 1000- rupee notes, the two biggest denominations in its currency system; these notes accounted for 86% of the country‟s circulating cash. With little warning, India's Prime Minister Narendra Modi announced to the citizenry on Nov. 8 that those notes were worthless, effective immediately – and they had until the end of the year to deposit or exchange them for newly introduced 2000 rupee and 500 rupee bills. Surgical Strike on Black Money called Demonetization‟ brought enormous changes in all the sectors of the country. Banks are not exceptional from the influence of Demonetization and it made vibrations in the operations as well as products and services of Banks. It created greater demand to digital banking services where cashless transactions are prioritized. It made greater influence on Management of liquidity and its demand raised by customers in exchanging of their banned currency notes while minimizing risk and maximizing quality of service. At the same time meeting the guidance of Reserve Bank of India was challenging. Demonetization has disturbed the bank operations and made the employees to work under unconditional stress in extended working hours of a day. Most of the banks were not able to discharge other banking services while exchanging the banned currency notes. Hence, the present study is made to figure out the influence of demonetization on banking sector. It showcases post demonetization effect on banks and its operations

Impact of demonetization on Indian Economic financial sector Countries across the globe watching India as a democratic country and is poised to become a leader of regions. In the global environment, India has multiple strengths of larger youth population, growing middle class people, increasing literacy level and improving technical knowledge among the work force which would address favorably any proactive change in the present setup. Moreover, demonetization, coupled with Digital India and Jan Dhan Yojana, is aimed at strengthening transparency in money transactions by curbing black money, corruption and financial crimes. Therefore, it is the best time to strike the chord of second financial reforms and new banking sector operations in tandem digital network so as to achieve remarkable economic development at a faster rate. In addition, a few immediate negative implications of demonetization are also seen in terms of minimum growth in GDP, losing job by wage earners in some industries and real estate sector which have affected the Indian economy to some extent. But, adopting good governance practices, providing sound infrastructure, congenial atmosphere to start business and ensuring trained workforce would have got positive long term impact on Indian economy. Further, total transparency in business operations through banking services would also increase tax revenue to the GDP ratio. Therefore, this paper will take up the issues relating to demonetization and its linkage to the implications of various sectors in Indian economy during pre and post demonetization periods discusses the experience and impact of demonetization on Indian economy

Five ways demonetization in india is effecting the poor Market vendors had to shut down their shops. Typically, market vendors farm on a daily basis and sell their production. The drop in customer traffic, however, forced the market vendors to shut down their shops. Since these laborers work without an official employment contract, they make up a part of an informal economy . As a result, without a regular flow of customers, it becomes hard for these people to survive. The majority of this informal economy depends upon cash transactions. The ban of the 500 and 1,000 rupee bills has tremendously affected migrant labor workers. Migrant labor workers are those who travel to find work every year. Similar to the informal economy, these laborers typically rely on cash transactions. Due to the fact that such cash transactions occur privately, without the interference of the banks, the demonetization policy makes it even more difficult for thesemigrant laborers who already travel far from home, leaving their families behind, in hope for a decent job. Demonetization has also negatively impacted small business owners who serve food onstreets. Due to the fact that the citizens had only 50 days to exchange their notes, customer flow completed stopped for many businesses. Additionally, many of these small business owners could not afford to stand in the long lines outside of the banks. For a wealthy family, losing an income of a few days does not make a big difference. However, for the poor, losing the income of even two days has an impact. As a result, people began skipping meals to keep their businesses running. The low-income, working class people suffer from the new policy. Typically, working class people have basic jobs with fairly low wages. Due to the fact that there is a shortage of cash flow, many low-income workers are experiencing delayed salary payments. As a result, it becomes difficult to run households. This especially becomes a problem when there are children who are going to school with high fees, or if there is a wedding in the house. Additionally, young adults getting ready for college also faced difficulties, since their parents were unable to afford to pay high college tuition. Demonetization in India has also negatively affected daily-wage workers. Since the implementation of demonetization, daily-wage workers, such as maids and housekeepers, have found it increasingly difficult to manage their lives. Cash shortages makes it difficult for them to get paid on time, which leads to skipping meals or working twice as much but for low wages. It also becomes hard for these workers to buy basic necessities or even pay education fees for children. As a result of financial strain, some children might have to do small jobs in order to bring in more money.

Demonetizationled to several changes for the financial sector

On November 8, 2016, currency notes of denominations of `1000 and `500 (specified bank notes or SBNs) valued at `15.4 trillion and constituting 86.9 per cent of the value of total notes in circulation, were demonetised. Demonetisation led to several changes for the financial sector which can be summarised below. (a)	Shift in currency demand: There has been a significant shift in the income elasticity of currency demand in the post-demonetisation period to 0.9 from more than 1 in the pre-demonetisation period, reflecting a reduction in cash intensity in retail transactions.1

(b) Significant growth in bank deposits: The excess’ low-cost bank deposit growth, a mirror image of the decline in currency icirculation (CIC), following demonetisation has been estimated in the range of 3.0-4.7 percentage points.

(c) Greater financial inclusion: Since demonetisation, 50 million new accounts were opened under Pradhan Mantri Jan Dhan Yojana (PMJDY) by October 2017.

(d) Detection of suspicious transactions: The amount of unusual cash deposits in special types of accounts (such as the Basic Saving Bank Deposit, PMJDY, Kisan Credit Card (KCC), loan accounts and the like) is estimated in the range of `1.6-1.7 trillion. Improved monetary transmission: In an environment of a surge in low-cost current account and saving account (CASA) deposits, banks announced a large cut in their marginal cost of funds based lending rates (MCLR) with a 100 basis points (bps) reduction in the 1-year MCLR. (f) Increase in mutual fund investments by households: A sizeable expansion in the collections of debt/income-oriented mutual funds occurred after demonetisation i.e., during November 2016 to March 2017. The assets under management (AUM) by mutual funds increased from about `16 trillion to 21 trillion between end-October 2016 and end-October 2017.

(g) Higher collections under life insurance schemes: The cumulative insurance premium collections during November 2016 to January 2017 increased by 46 per cent over the same period of the previous year.

(h) Accelerated digitisation of retail payments: The latest data reveal that prepaid payment instrument (PPI) volumes increased by 54 per cent between November 2016 and August 2017, as also mirrored in the significant drop in the income elasticity of currency demand referred to earlier. (i) Higher rate of detection of fake Indian currency notes (FICNs): In the post-demonetisation period, the rate of detection of FICNs rose to 6 pieces and 12 pieces for `500 and `1000 notes, respectively, for every million pieces of notes processed – more than twice during the pre-demonetisation period.

Demonetisation and Financialisation of Savings

Demonetisation also resulted in gains for the non-banking financial intermediaries such as debt/income oriented mutual funds and insurance companies. In fact, the aggregate balance sheet of the non-banking financial companies (NBFCs) expanded by 14.5 per cent during 2016-17 The financialisation of saving can be broken up under three non-banking financial intermediaries: mutual funds, insurance companies and NBFCs.

CONCLUSION To conclude an important effect of demonetization has been the inducement to shift towards Formal channels of saving by households and a noticeable downward shift in currently demand Of public. There has been a sharp increase in the number of accounts under the PMJDY and The deposits in such accounts have also surged, which has given a boost to financial inclusion Efforts. During demonetization and the subsequent period. there has been a distinct increase In saving flows into equality debt oriented mutual funds and life insurance policies. Apart from This.nan banking financial campanies seem to have recorded improvement in collections and Disbursals. demonetization led increase in CASA deposits also led to significant improvement In transmission to bank lending rates during the post demonetization period.the challenge.going Forward .would be to channel these funds into productive segments of the economy and expand The footprints of the digital economy.which has undergone a sharp increase another important Consequence of demonetization.

References ; Research papper of Dr bupal sing, collective books , internet , wikepedia ,researchers pdf , Shamseer abdul rehman (talk) 01:46, 17 March 2023 (UTC)