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Did a Few People Know About Demonetisation in Advance?

Nov 21, 2016


Conspiracy theories normally accompany all big-game changing events. The decision of the Modi government to demonetise Rs 500 and Rs 1,000 notes, from the midnight of November 8, 2016, is one such event.

It is now being said that a section of the population knew in advance that demonetisation was coming and high value notes of Rs 500 and Rs 1,000, would no longer have any value. Anecdotal evidence in the form of WhatsApp forwards showing massive deposits made into banks before the demonetisation move was carried out, has been offered on this front.

This suspicion becomes even more pronounced when one looks at the jump in deposits held by banks as of end September 2016, in contrast to earlier periods. Look at Figure 1, which plots out the quarterly increase in bank deposits, over nearly 15 years.

Figure 1

Quarterly increase in bank deposits (in Rs. Crore)

This Figure 1 clearly shows that the increase in bank deposits between end of June 2016 and end of September 2016, was the maximum, in absolute terms, since March 2002. Rs 1,83,035 crore of bank deposits were added during the three-month period between end June and end September 2016.How do things look when it comes to growth in percentage terms? Look at Figure 2.

Figure 2:

Quarterly Growth in Bank Deposits (in %)

Between end June 2016 and end September 2016, deposits with banks grew by 18.2 per cent. This is clearly not the highest since March 2002. But all other peaks came at significantly lower deposit bases, many years back. The highest growth in quarterly bank deposits in the dataset considered, came in 21.8 per cent between end December 2009 and end March 2010.

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Since then nothing has come even close to this. Hence, for the three-month period ending September 2016, the quarterly growth in bank deposits was the highest in six and a half years.

How do things look when we look at them on a monthly basis? Look at Figure 3.

Figure 3:

Monthly Increase in Bank Deposits (in Rs Cr.)

As can be seen from Figure 3, deposits of banks increased by Rs 1,66,437 crore between end August 2016 and end September 2017. This is clearly the highest nearly in five years. In percentage terms, this amounts to a month on month increase of 16.3 per cent, the highest since December 2011.

This growth in deposits of Rs 1,66,437 crore was just a little less than the total monthly growth in deposits over the previous twenty months between end of October 2014 and end of August 2016. The total growth in deposits between October 2014 and August 2016 had stood at Rs 1,71,108 crore just a little more than Rs 1,66,437 crore.

The question is why was there such a huge jump in bank deposits in the month of September 2016? Was it because a small section of people came to know of demonetisation in advance and started depositing money in banks to ensure that their money continues to be of value?

In a report written in April 2016, Soumya Kanti Ghosh,  the group chief economic adviser of the State Bank of India (SBI), the largest bank in the country, had said: "There are suggestions in public domain and even analysis that are suggesting that higher denomination notes may be replaced."

This is something that both the Reserve Bank of India as well as the government need to explain. What was the real reason behind this deposit surge? One explanation offered has been the Seventh Pay Commission. Nevertheless, higher salaries of current government employees and higher pensions of ex-government employees, cannot explain this massive deposit surge of Rs 1,66,437 crore during a period of just one month. Unlike the previous Pay Commission, this time the Pay Commission awarded higher salaries and pensions almost on time, and hence, arrears, if any, weren't huge.

This jump needs to explained as well as investigated. Given that the IT department is sending in notices to people who have been depositing a large amount of cash since high-denomination notes were demonetised, the deposits that were made in September 2016, also need to be investigated.

Equally intriguing is the fact that between end September 2016 and end October 2016, the deposits with banks dropped by 10 per cent or Rs 1,19,193 crore, which is the highest drop in the last five years. Something clearly doesn't add up here.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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40 Responses to "Did a Few People Know About Demonetisation in Advance?"

Jignesh Patel

Nov 30, 2016

Dear Sir

Writing and sharing a thought should always be unbiased othwrwise you should not attempt to do that.
Why i mean to say this is because you get carried pff by your own influence and talk shit.(pardon my laungague)

What do you understand from the increase in deposits before the announcement of demonisation.?

Some people close to Modiji knew about this is it ? (How bullshit)
Ok answer me this question of mine. Who every knew prior to announcement like assume me. So i deposited my money immediately to the bank, my black money is it ?

So you also mean that I would not been able to deposit after the announcement is it ?

If i have to give you w piece of advise, dont look at deposits, look at the asset class which can be bought with black money easily. Second see if there is any sudden spurt in volumes in any currency conversion say dollar, euro or yen or any other currencies.

Like (1)

Manohar Kantak

Nov 28, 2016

Dear Vivek Sir,

We cannot rule out any possibility in this case. We have to wait and watch the situation. No man is perfect. Some beneficiaries may be there, but we have to see larger interest of our nation. GDP will slow down, unemployment will also increase etc. these are normal issues that we think. Did we think that demonetisation will take place on 8th Nov.2016.

The step is taken, and perhaps the Prime Minister must have made provision to counter all these problems. We are a huge country of 125crore population, if progress is needed in short period than such steps are to be taken. Look at the number of rapes taking place in our country, now if capital punishment is imposed 80% of rapes will stop. People will object and criticize that also.

There will be some pain. No pain no gain. We try to co operate and support him. The best we can do.

Like (1)


Nov 24, 2016

There are numerous additional factors. With the writing clear on the wall , inflation coming down and RBI governor ( stubbornly supporting the savers)being changed -pensioners, elderly and those retiring with pay commission bonanza a large percentage of people rushed for fixed deposits during this period. VDIS and toughening of government stands towards hidden accounts people put it in FD.

Like (1)


Nov 24, 2016

Equally Intriguing are the below facts:

- Two Newspapaers (maybe more) in Gujarat published the demonetization scheme in April - Dainik Jagaran and Amar Ujala
- The renowned Hindi Poet HariOm Pawar had recited a poem about an year ago clearly mentioning this scheme with very minute details. He also went on saying that individual lockers should be checked and opened in presence of a tax official. This poem is doing the rounds in watsapp
- Black Money Stashed abroad is much bigger in scale and size, yet the first target becomes the domestic wealth of the middle class.
- The Govt selectively adopted the suggestions given by the SIT against black money. The SIT never recommended issuance of 2000 rupee notes, the SIT suggested formation of Lokpal, the SIT suggested disclosure of account numbers in swiss accounts and proper concerted efforts to bring the money back to India. NO wonder the supreme court whacked the Govt for sitting mum on the Lokpal.
- Reliance JIO offer dates coincinding with the demonetization plan
- The new RBI Governor having close links with the Ambanis
- International Media including Bloomberg has vehemently criticized the move
- Barring AJ and MB, almost all corrupt politicians have supported the move. This is alarming!!!
My two cents:
- Demonetization would have been a great move had it been done with a clean intent and not just to win upcoming elections/fill the coffers of some favoured politicians and Industrialists etc etc
- Govt is giving multiple reasons for Demonetization - they want to provide affordable homes for the poor, provide proper sanitations, roads, healthcare, education blah blah blah. But what happened to similar promises in the past where the govt went on to say that they will get the cash stashed out abroad as a first step towards black money and then deposit 15lakhs each to each salaried taxpayers account. Neither of the two could see the light of the day. These promises are just made to lure/misguide the common man because they are the soft targets and they cannot act against the Govt since they are divided into innumerable smaller units.

Like (1)

Gautam M

Nov 22, 2016

Heavy withdrawal in Oct might have been due to the onset of festive season as people spend heavily in these 1-2 months. Deposits peaking before this might be due to VDIS, pay commission arrears, people withdrawing from other avenues like shares, etc. and locking them in FD, etc. as pointed out by multiple readers.
The thing is what seems conspiracy seeing the trend might be a perfectly natural and legitimate thing considering the background circumstances. Would be better if Vivek can publish a second series containing more analysis of the types of deposits and withdrawals made and possibly average size of transaction if these data are made available by RBI.

Like (1)


Nov 22, 2016

If we go with RBI data on deposits, there has been always a spike in deposits growth during September month. Moreover, government has implemented 7th CPC and paid arrears for last 8 months amounting to Rs 31k crore. So there is no surprise if there is a huge increase in deposit. And in the first place, a person who is having black money does not go to bank and deposit it, if he got to know about the demonetsation before the formal announcement. If he does so then also the purpose behind this move is fulfilled. I am not sure whether the information on demonetisation of high denominated currency leaked before Nov 8 or not, but increase in deposit certainly not prove this. The person will find alternative routes to park his unaccounted money.Before making any assumptions kindly cross check the numbers as well. The figures you have used is not matching with the original source of info (RBI).

Like (1)


Nov 22, 2016

This article is the classic case of biased opinion and under reporting of facts.
1. Huge receipts from pay commission arrears resulted into spike of deposits.
2. VDIS scheme
I never expected this type of political and sensational articles from Equitymaster.
the author has just forwarded the grapevine news without thinking.Copy paste news .
Hugely disappointed .

Like (1)

P Pradeep Kumar

Nov 22, 2016

Dear Vivek,

I am surprised to see your theory of higher deposits in Sep'2016 doesn't include Govt's one time window of voluntary disclosure of black money before 30th Sep'2016 .

I don't find any merit in your report and its totally biased and misleading the readers.

Like (1)


Nov 22, 2016

Nice article with data. Just had one view Vivek. The hypothesis is that a few people may have known about this in advance. If so, what would those people have done? Deposit in bank accounts? Why? That makes it the same situation as not having known at all as that is what everyone is being asked to do now.
With advance info, they would have rushed to convert their cash holdings into other asset classes like gold, real estate, money-lending, etc, through transactions where holdings still stay unaccounted, off-radar.
One thing is possible. During this conversion to other asset classes, part of the money could have come into banks by the receivers of this money. So a look at Gold & Real estate data along with this bank deposits data could give a better picture.
Also, given the technologically advanced world that we live in, I doubt such things could have been kept silent. Information spreads like wild fire, particularly in matters of currency notes that affect people across the board - the affluent, middle and lower classes.
Look forward to hearing your views. Thanks.

Like (1)

Prashant Manohar

Nov 22, 2016

When you are discussing about demonetisation, what is relevant is the Cash Deposited into Bank Accounts either in Current/Saving/Term deposit Account. You have taken into account the data relating to INCREASE IN BANK DEPOSITS. What you should have considered is CASH DEPOSITED INTO BANK ACCOUNTS. Due to use of irrelevant data, your Report has become useless.

Like (1)
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