Will Demonetisation really help banking stocks?

With demonetisation shaking up the economy and affecting millions of investors' portfolios, there is a consensus emerging amongst the experts on the benefits derived by the banking industry.

Says Pankaj Pandey, head- Retail Research at ICICI Direct, “With the objective of curbing black money & terror financing, recent move by government of phasing out high denomination notes, will have positive spill-over effect on banking.

Banks are expected to witness a surge in low cost deposit (CASA). With higher proportion of currency in circulation (CIC) getting converted into deposits and greater acceptance of digital channel, transaction volume and subsequent fee income can get a boost in long run. Lower cost of digital transactions will also aid in lowering bank’s operating costs.

Consequent decline in yields, may lead banks to garner treasury gains which will be another positive. Well capitalised retail centric banks continue to remain a preferred bet on asset quality front despite short term hiccups expected due to demonetization move.”

Investors may stick with private banks that are ahead on digitisation curve such as HDFC Bank, ICICI Bank and SBI.