RBI announces to withdraw Rs 2000 currency notes: How would Indian markets react to this move?

The Reserve Bank of India’s decision to withdraw the Rs 2000 denomination currency note may not have much impact on Indian equities and the economy. This could be positive for the banking sector, said market expert Ajay Bagga in a conversation with Zee Business. 

While explaining the reason behind the minimal impact of this move on the markets and economy, Bagga noted that the Rs 2000 denomination currency notes are not in much circulation. Moreover, businesses don’t operate in cash.  

जिज्ञासा Alert!#RBIToWithdraw2000note, RBI के इस फैसले का बाजार पर क्या होगा असर?

₹20000 की लिमिट क्यों रखी गई है?

सवाल पब्लिक का, सही जवाब जानिए एलिमेंट्स प्लेटफॉर्म्स के चेयरमैन अजय बग्गा से...@AnchorDeepak_ @Ajay_Bagga @BrajeshKMZee #2000Note #ZeeSawal2000Ka pic.twitter.com/dLTGnK4qak

— Zee Business (@ZeeBusiness) May 20, 2023

According to the market expert, "No friction or impact on the economy is seen, and Indian markets will take this decision maturely."  

This move could be positive for banks as the money will return to the lenders in the form of deposits or by any other formal channel, Bagga said while explaining that this will be good for the economy. 

The RBI on Friday, in a surprise move, announced the withdrawal of Rs 2000 currency notes from circulation but gave the public time till September 30 to either deposit such notes in accounts or exchange them at banks. 

Rs 2000 notes will continue to be legal tender till September 30, unlike the shocking demonetisation of November 2016, when currency notes of Rs 500 and Rs 1000 were invalidated overnight. 

In a statement, the Reserve Bank of India (RBI) said it has asked banks to stop issuing Rs 2,000 notes with immediate effect. 

While the RBI did not specify a limit for depositing Rs 2,000 currency notes in bank accounts, an exchange of a maximum of Rs 20,000 (10 notes of Rs 2000) for other currency notes will be allowed at one time. 

The move comes amid concerns about the highest denomination notes being used to hoard black money. The RBI had stopped printing Rs 2,000 notes in 2018-19 and the notes were rarely in circulation. 

Rs 2,000 denomination notes were introduced in November 2016, primarily to meet the currency requirements of the economy in an expeditious manner after the withdrawal of Rs 500 and Rs 1,000 banknotes.