September 25, 2022


 We responded by encouraging our customers to use alternative channels like online repayments using net banking, debit cards and e-wallets. We also started accepting repayments by cheque. These measures were helpful in tiding over the initial dislocation. With the short term pains having eased somewhat, a return to full normalcy can be expected once adequate supply of new notes come into the system. Besides, we also expect demonetization to cause a temporary slowdown in the economy’s growth rate which may last for a couple of quarters or so. This will likely affect businesses across sectors because the nature of an overall slowdown is such it tends to pull down everything.

Beyond the stated objective of unearthing black money, the government is also eager to set in motion the process of moving eventually towards a cashless society. That is why, in trying to assess the likely long term impact, we are very clear it will be hugely positive. The overall push towards a cashless economy is likely to kick-start a long term, secular trend of shift in business away from the informal and unorganised players towards the organised sector. Informed estimates suggest that nearly 3/4th of the gold loan business is still with the unorganised players who conduct their business in cash, and who are generally not tax compliant. The squeeze on cash will favour banks and also NBFCs like ours. In fact, I believe NBFCs stand to gain more as they have greater last mile reach and better connect with the low income customers who depend on the informal economy. Banks that are burdened by higher operating costs will not find it remunerative to deal with this 2 section. On another note, after demonetization banks are flush with CASA (current and savings account) funds and they have already started to lower their interest rates on deposits. It won’t be long before lending rates come down and that will be a plus for gold loan NBFCs who depend onbanks for the bulk of their funding.

While the demonetisation announcement itself was quite unexpected — a bolt from the blue, so to speak — for some time now, we have all been getting indications that government is serious about minimising the role of cash in the economy. And, having read the writing on the wall, we have moved to position ourselves in line with this trend.



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