Not only black money hoarders, demonetisation may give pain to the economy as well

According to reports, the Finance Ministry has projected GDP growth at 5.5 per cent in Q3 as against 7.2 per cent a year ago. The FIIs reacted sharply and pulled out more than Rs 10,000 crore from the Indian equity markets. Although it seems like banks are returning to normal, the planning and execution gap is quite evident as people are still struggling to get cash.

It is estimated there are around 85 per cent high value notes in the Indian economy and banning these has come as a shock and has hampered both production and consumption. The tech-savvy urban population has got away by online and other digital modes of transactions, but the activities of rural population, which are mostly cash-based, were severely impaired.

Banking shares had initially soared as deposits increased to a significant extent, but the projected decline in GDP growth and the distress amongst borrowers that may lead to an increase in bad debts, saw the banking scrips tanking subsequently. The Bankex index as on November 23 at 10.10 am was trading down by 20 points. 

The NBFCs too are bound to face non-repayment challenges. The Reserve Bank of India (RBI) has relaxed norms for recognising bad loans, which the NBFCs fear may induce borrowers to stop repayment.