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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.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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


Nov 22, 2016

I have been a follower of equitymaster for quite some time and like honest views of most authors. But this one is clearly an exception and surprising in this website. Author has been clearly selective in showing data points. Is equitymaster getting biased or is this totally individual view? If we cannot help someone who risks his political carrier by taking wrath from everyone around, lets not derail nation by being biased and posing as experts with selective data points.


d s arora

Nov 21, 2016

Mr. Kaul you seems to be confused. The data presentation was not understandable and is contradictory.



Nov 21, 2016

Poor and one sided analysis, not becoming of Vivek Kaul's stature. The VDIS scheme was to end in September and that brought in much more deposits. Plus the interest rate on FD's was falling at this stage and faster. Also, were these cash deposits ? The currency note change operation now underway attacks cash.

Is Mr Kaul trying to be on both sides, so that he can conveniently shift his position if the current operation does not yield results as expected ? For heaven's sake, please take a stand - in favour of the honest taxpayer and against the corrupt free loaders !!


PSR Krishna

Nov 21, 2016

Already few people commented on this. Still I want to say that 7th pay commission & OROP arrears have been put in Banks and that need to be factored out. You have not mentioned them in any way in the article. I certainly feel that is a big chunk. Need to write and addendum article fully analyzing all the aspects. I will certainly be waiting for one with all the facts.

Like (1)

Muthuswamy N

Nov 21, 2016

You have clearly missed the voluntary disclosure scheme. Before you ask the govt to investigate, cany you knock out the amount collected through the voluntary disclosure, rework your graphs and enlighten us as to how the picture looks?

Like (1)


Nov 21, 2016

Figure 3

The deposits of September 2016 could have been channelled to other assets like Stocks & Bonds in October 2016. Or whether innocents withdrew and got stuck ?

Like (1)


Nov 21, 2016

People talking about VDIS or IDS collection have forgotten that D in it means disclosure / declaration only and not deposit.

VDIS included ASSETS too which includes undisclosed property / gold etc too NOT just cash.

Not sure if Government has disclosed breakup of deposits in back though. Only that can give the idea.


Like (1)

P Chandrasekar

Nov 21, 2016

There is a high probability that it was in the 'grapevine' from circles closer to 'power'. When someone asked me in the passing, I had reacted saying that the value of current Rs.500 note(if we take 1978 demonetization as the benchmark) would be equivalent to Rs.10 (of 1978, a little exaggeration to drive home the point! No one in their senses, would do pull the trigger, because of the chaos! All the more because most of the black monies, an estimate by an economist puts it at 98%, are in forms other than cash!!

Hence, if few people had known, almost all of them would have used channels to convert and "not" deposit in the banks!

Like (1)


Nov 21, 2016

This was a half-baked article. You may as well have skipped writing this altogether. How is the money declared under VDIS held, cash in bank, gold, land ,etc ? Any information on this ?
Also, in what capacity & rate can the currency notes be deposited in the bank without PAN ?

Like (1)


Nov 21, 2016

I am a regular viewer of your articles and am surprised at the findings coming from an accomplished writer like you.. The impression one gets after reading the article is of an amateur writer trying to establish himself with some contrarian views without doing any homework.There have been some important happenings during the last few months which have been lost sight of while writing the article.During the last quarter there was the VDIS scheme which closed as also the Arrears payment had been made. The market was at dizzy heights, and a lot had been spoken about likelihood of a market correction to the extent of 10-20 percent on account of uncertainty of the results of US presidential election. The impact of the Brexit on the markets , although very short was fresh in the minds of the people. Within our country there was so much talks going on about the impact the GST . All these factors point towards uncertainty in the minds of investor community who might have found a safe heaven of assured returns in the FDs of Banks and might have parked their funds temporarily.

Like (1)
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