Note ban could put additional interest burden on RBI: Rajan
The failure to stop dodgy cash coming back into the banking system after demonetisation has likely burdened the RBI with additional interest payments running into tens of thousands of crores, former governor of the central bank Raghuram Rajan said on Thursday.
Latest RBI data shows that all but 1% of the high-value bank notes demonetised have returned to the banking system, meaning black money hoarders found ways to legitimise their cash that now earns interests. Rajan estitheir mates this burden could be as high as ₹24,000 crore a year.
“One of the costs which people haven’t paid enough attention to is (that) this was money sitting, if you believe it was black money, it was sitting in people’s safes or in basement. It wasn’t earning any interest,” Rajan said referring to short term economic costs of demonetisation.
“Once it gets into the formal system, if you haven’t identified it as bad money, these are people gaining interest on it.”
Flushing out black money was a key objective of the November 8 decision to demonetise highvalue bank notes worth ₹15.46 lakh crore, or 86% of the total cash in circulation at that time. The government had hoped that at least ₹3 lakh crore of this, held as unaccounted-for cash, would not
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