The 2016 demonetisation and its uneven effects on deposits and cash use

On November 8, 2016, the government withdrew legal-tender status from the ₹500 and ₹1,000 banknotes, removing about 86% of currency in circulation by value overnight in a stated effort to curb black money, counterfeiting, and terrorist financing, with the RBI's currency-management operations then redirected toward distributing newly printed notes from presses to bank branches and ATMs as quickly as possible. An RBI Bulletin study published in December 2018 examining deposit patterns through 2016-18 found that savings deposits absorbed the bulk of the cash inflow, accounting for 66.2% of incremental deposits in 2016-17 as households funneled surplus currency into bank accounts, and that cash-transaction intensity measurably declined in 9 of 36 states and union territories immediately afterward. However, the RBI's own data also showed that reduction proved largely temporary, with most regions reverting toward prior cash preferences by 2017-18, while separate RBI figures showed roughly 99% of the demonetised currency's value was eventually returned to the banking system, feeding a broader debate over how much the policy achieved relative to its short-term disruption to growth, which slowed to around 5.7-6.1% in the following quarters.