SBI may retain up to 40% of deposits made during note ban: Arundhati Bhattacharya

DAVOS: Analysts scratching their heads over the impact on India's banks of the country's move to ban high-value notes have every right to be puzzled, as estimates offered by the chairman of State Bank of India indicate.

The bank could retain anything from 15 per cent to 40 per cent of the deposit boost it received after the government withdrew about four-fifths of the banknotes in circulation in November, Arundhati Bhattacharya said in an interview on Wednesday with Bloomberg Television's Erik Schatzker. She was unable to give a precise estimate amid uncertainty about how much of that money came from Indian businesses as opposed to individuals.

If much of the money that came was being used in business, "then much of it will get taken out because people will want to use it in their business again," Bhattacharya, 60, said on the sidelines of the World Economic Forum in Davos, Switzerland.

"But if much of this money is from savings of people, which was sitting in their cupboards or wherever, then obviously it won't go out," she said. "Once it's in the bank, it'll stay in the bank and therefore that's why we have a very wide kind of range."

For weeks, investors have speculated over whether the surging bank deposits caused by the November 9 ban on high-value notes will ultimately benefit lenders. The S&P Bankex Index, which tracks 10 lenders, rose almost 4 per cent following the move, before slumping 13 per cent and has since clawed back much of that slump.

"Retaining more deposits means low cost funds that can be lend out to improve bottom line at banks," Payal Pandya, a Mumbai-based analyst at Centrum Wealth Management Ltd., said by phone. "Lenders focus should shift to deploying the money as loans as soon as they can."

State Bank of India