Banks to bear an estimated cost of Rs.351 billion for demonetisation

by Mahesh Vyas

People queueing outside banks to convert their old 500 and 1,000 rupee currency notes into bank savings or into new currency notes are serviced by bank managers, officials and other staff. The pressure of this conversion is so high that the bank can do very little else. To calculate the cost of their work in converting old currency notes we assume that they spend 95 per cent of their time on this work.

Besides banks, conversions are also done at post offices. We assume that only half of the resources of only rural post offices are engaged in this conversion.

Besides wages and associated overheads of operating bank branches and post offices, the banks have had to bear a substantial additional cost during the demonetisation exercise - of repeatedly re-calibrating the ATMs. We consider the individual costs sequentially.

First, we consider the wages and other operational overhead costs. Here, on an average there are nine bank employees per bank branch. Given that there are 137,000 bank branches, this implies that there are a total of 1.23 million bank employees. By official records there were 1.29 million person employed in scheduled commercial banks as of March 2015. So, the assumption of 9 employees per branch fits with the overall numbers.

The average income of a bank employee is about Rs.7 lakh per annum. With about 250 working days per person per year, this translates into a wage income of Rs.2,800 per day. We assume that during the 50-day period, the official earns an additional Rs.1,500 per day by way of overtime. Further, the overheads costs would be about a third of the wage bill, i.e. Rs.933 per person per day.

Assuming that only 95 per cent of the bank staff works towards demonetisation, the total cost of a bank employee works out Rs.6,130 per day. And the total cost for 50 days works out to Rs.306 billion.

Wages in post offices are lower at Rs.1,600 per day and so the cost works out to a lower Rs.36.7 billion. It is assumed that there are no personnel costs for ATMs since half of them are within the bank and others are mostly unmanned.

Banks have had to engage additional security to manage crowds. This is estimated to cost them Rs.6.5 billion.

According to a report filed by Nupur Anand and Anup Roy in Business Standard on November 19, the cost of recalibrating an ATM is Rs.10,000 and there are 202,801 ATMs to recalibrate. This cost therefore works out to about Rs.2 billion. Using the information in the Business Standard story, our workings show a cost of Rs.1.8 billion.

The three costs discussed above - wages and operational overheads, additional security and re-calibration of ATMs adds up to a total cost of Rs.351.4 billion to be borne by banks for the demonetisation exercise.

This does not take into account the opportunity cost of loss of business during these 50 days. It does not take into account the cost of maintaining the records of all the persons who submitted their identity proofs against the transactions made by them. This cost will continue for some time beyond the 50 days under consideration.

CMIE STATISTICS
Unemployment Rate
Per cent
5.5 -0.0
Consumer Sentiments Index
Base September-December 2015
94.7 0.0
Consumer Expectations Index
Base September-December 2015
96.5 0.0
Current Economic Conditions Index
Base September-December 2015
91.9 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Mar 16 Jun 16 Sep 16 Dec 16
New projects 3.31 1.54 2.34 1.42
Completed projects 2.26 0.90 2.15 0.76
Stalled projects 1.04 1.32 0.35 0.44
Revived projects 0.63 0.42 0.51 0.17
Implementation stalled projects 0.92 0.50 0.57 0.79
Updated on: 23 Feb 2017 9:20AM
Quarterly Financials of Listed Companies
(% change) Mar 16 Jun 16 Sep 16 Dec 16
All listed Companies
 Income -0.2 -0.9 2.1 6.4
 Expenses 0.9 -0.4 1.8 6.7
 Net profit -29.1 -3.5 15.3 36.9
 PAT margin (%) 4.9 6.9 7.0 6.0
 Count of Cos. 4,395 4,353 4,313 4,204
Non-financial Companies
 Income -2.1 -2.5 0.6 6.1
 Expenses -3.9 -2.9 -0.2 7.7
 Net profit 4.8 10.3 27.5 21.0
 PAT margin (%) 6.2 7.4 7.0 6.1
 Net fixed assets 3.8 -9.2
 Current assets 3.1 8.1
 Current liabilities 10.6 11.5
 Borrowings 6.7 3.1
 Reserves & surplus 7.9 8.6
 Count of Cos. 3,455 3,426 3,393 3,316
Numbers are net of P&E
Updated on: 23 Feb 2017 9:28AM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 11.9 9.3 4.3 0.2
 Expenses 12.1 9.2 4.3 0.3
 Net profit 1.0 -4.2 2.7 -12.1
 PAT margin (%) 3.6 3.2 3.3 3.4
 Assets 14.1 12.2 8.9 7.7
 Net worth 9.5 9.4 8.2 6.2
 RONW (%) 6.8 6.0 6.1 5.7
 Count of Cos. 23,087 20,259 18,916 14,317
Non-financial Companies
 Income 11.1 8.9 3.3 -1.1
 Expenses 11.4 8.6 3.4 -1.9
 Net profit -8.9 -5.6 -3.6 14.1
 PAT margin (%) 2.4 2.1 2.2 3.1
 Net fixed assets 12.9 11.3 12.3 10.8
 Net worth 7.7 8.3 6.6 5.0
 RONW (%) 5.4 4.8 4.8 6.1
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.0 1.9 1.9 2.1
 Net working capital cycle (days) 71 69 68 68
 Count of Cos. 17,721 15,860 14,813 11,415
Numbers are net of P&E
Updated on: 21 Feb 2017 3:48PM

Low government spending and low consumer expectations to keep growth subdued

Modest increase in capital expenditure; no incentive to private players

Rs.5.34 trillion or 3.2% of GDP