The unusual spike in bank deposits in the month of September is mainly due to the Income Disclosure Scheme (IDS) of the government, apart from arrears of the seventh pay commission which was credited in bank accounts in September, a research report authored by Soumya Kanti Ghosh, chief economist, State Bank of India, said.
The report said aggregate deposits of the banking system had grown in the range of 8.8 per cent to 12 per cent in the last two years while the average increase in deposits in the month of September in the last 12 years has been around Rs.1 lakh crore.
“However, in the month of September 2016, there was a substantial increase in deposits by Rs 2.87 lakh crore, which is remarkably different from the trend,” it said.
The report said about Rs.45,000 crore came in the form of arrears of the seventh pay commission, which were deposited in the bank accounts in the first week of Septemer, and assumed Rs 1.56 lakh crore was incrementally added in September, if the average of last three years are considered.
“We believe that a large part of the residual amount worth Rs.85,818 crore could have been deposited in the banks because of reasons related to Income Disclosure Scheme (IDS) that ended on September 2016,” Mr.Ghosh wrote.
He said given that IDS attracted a penalty of 45 per cent, people may have preferred to disclose these as forceful deposits / advance tax payments so as to pay a tax of 30 per cent and not 45 per cent.
There have been allegations from opposition political leaders like Aam Aadmi Party chief and Delhi chief minister Arvind Kejriwal that many knew about the cash ban and parked funds in banks in September.
March alert
Interestingly, a report by the same author in April hinted demonetisation could be a reason for deposit surge in March.
“There are suggestions in the public domain and even analyses that are suggesting that higher denomination notes may be replaced. We believe as a result of that people may be using more of high value currency to purchase safe haven assets,” the report which was released on April 7 said.
Mr. Ghosh had also suggested in the April report that if demonetisation was being contemplated, a road map needed to be created.
“It needs to be done in steps and be balanced with creation of necessary electronic and digital infrastructure in the country coupled with creating awareness and financial literacy for ensuring that the man on the street is not put to undue hardship,” he had said.
