SBI action towards demonetization

State Bank of India (SBI) reduced rates on deposits from one year to 455 days to 6.90%, down 15 basis points, while keeping the 7% rate for deposits between 211 days to one year unchanged. That may not be great news for those putting their money in banks but lending rates are likely to follow suit in a few weeks, possibly giving sluggish credit expansion a much-needed boost and shoring up growth. A basis point is 0.01
percentage point.

“All rates will fall,” said SBI Chairman Arundhati Bhattacharya. “The bank has seen huge inflow of deposits but demand for credit has slowed down. Therefore, lending rates too will fall but after a gap.”

Of the Rs 14 lakh crore worth of Rs 500 and Rs 1,000 notes that have been scrapped, roughly Rs 3 lakh crore are not likely to be exchanged for new notes ever. This entire extinguished or disappeared black money will be profit to the RBI, and will be transferred to the central government as dividend.

Any deposit that is significantly in excess of Rs 2.5 lakh and reflects an “abnormal” rise in income is likely to be scrutinized and subjected to a 200% penalty+ as it may not be seen as eligible for the current year’s tax assessment, tax authorities have said.

A sharp increase in income that does not seem consistent with past patterns will need an explanation though smaller increases in deposits might be acceptable as part of the ongoing 2016-17 tax assessment. Penalties can be challenged but scrutiny of large cash deposits will be on the cards over the next few weeks.

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