Nine bank stocks dropped by 0.22% to 2.1% at 14:00 IST on BSE after the government cancelled the legal tender character of the high denomination bank notes of Rs 500 and Rs 1,000 denominations in order to crackdown black money.
Among private sector banks, IndusInd Bank (down 1.66%), Axis Bank (down 0.66%), ICICI Bank (down 2.1%), Kotak Mahindra Bank (down 0.81%), Yes Bank (down 1.43%), and HDFC Bank (down 0.53%) declined.
Among public sector bank stocks, Canara Bank (down 0.22%), Union Bank of India (down 1.44%), Bank of India (down 0.73%), and Bank of Baroda (down 0.65%) declined. State Bank of India (SBI) (up 1.86%) and Punjab National Bank (up 0.25%) gained.
The S&P BSE Bankex shed 167.70 points or 0.75% at 22,166.87. It outperformed the Sensex which was down 383.12 points or 1.39% at 27,208.02.
The S&P BSE Bankex outperformed the market over the past one month till 8 November 2016, gaining 0.82% compared with 1.67% fall in the Sensex. The index also outperformed the market in past one quarter, gaining 3.13% as against Sensex's 2.1% fall.
With a view to curb financing of terrorism through the proceeds of fake Indian currency notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating black money which casts a long shadow of parallel economy on real economy, it has been decided by the NDA government yesterday, 8 November 2016, to cancel the legal tender character of the high denomination bank notes of Rs 500 and Rs 1,000 denominations issued by the Reserve Bank of India (RBI) till now. This takes effect from the expiry of the 8 November 2016.
Fake Indian currency notes (FICN) in circulation in these denominations are comparatively larger as compared to those in other denominations. For a common person, the fake notes look similar to genuine notes. Use of FICN facilitates financing of terrorism and drug trafficking. Use of high denomination notes for storage of unaccounted wealth has been evident from cash recoveries made by law enforcement agencies from time to time. High denomination notes are known to facilitate generation of black money. New Series bank notes of Rs 500 and Rs 2,000 denominations will be introduced for circulation from 10 November 2016. Infusion of Rs 2,000 bank notes will be monitored and regulated by RBI. Introduction of new series of banknotes which will be distinctly different from the current ones in terms of look, design, size and colour has been planned.
The World Bank in July, 2010 estimated the size of the shadow economy for India at 20.7% of the GDP in 1999 and rising to 23.2% in 2007. There are similar estimates made by other Indian and international agencies. A parallel shadow economy corrodes and eats into the vitals of the country's economy. It generates inflation which adversely affects the poor and the middle classes more than others. It deprives Government of its legitimate revenues which could have been otherwise used for welfare and development activities.
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Keeping in view the need to minimise inconvenience to the public, the operational guidelines have been issued which among others includes deposition of old high denomination bank notes by individuals/persons into their bank accounts and/or exchanged in bank branches or Issue offices of RBI till the close of business hours on 30 December 2016. Old high denomination bank notes of aggregate value of Rs 4,000 only or below held by a person can be exchanged by him/her at any bank branch or Issue Office of Reserve Bank of India for any denomination of bank notes having legal tender character, provided a Requisition Slip as per format to be specified by RBI is presented with proof of identity and along with the Old High Denomination Bank Notes. Similar facilities will also be made available in Post Offices.
Cash withdrawal from a bank account, over the counter will be restricted to Rs 10,000 subject to an overall limit of Rs 20,000 in a week for the first fortnight, i.e., until the end of business hours on 24 November 2016. There will be no restriction on the use of any non-cash method of operating the account which will include cheques, demand drafts, credit/debit cards, mobile wallets and electronic fund transfer mechanisms. Withdrawal from ATMs would be restricted to Rs 2,000 per day per card up to 18 November 2016. The limit will be raised to Rs 4,000 per day per card from 19 November 2016 onwards.
For those who are unable to exchange their Old High Denomination Bank Notes or deposit the same in their bank accounts on or before 30 December 2016, an opportunity will be given to them to do so at specified offices of the RBI on later dates along with necessary documentation as may be specified by the Reserve Bank of India. Instruction is also being issued for closure of banks and Government Treasuries on 9 November, 2016. The bank branches and Government Treasuries will function from 10 November, 2016.
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