The weakness in real estate activity and moderation in housing prices have also slowed down investment in physical savings and help channel funds into financial savings.
“An important positive impact of demonetisation has been to induce a shift towards formal channels of saving by households. During demonetisation and the subsequent period, there has been a distinct increase in saving flows into equity/debt oriented mutual funds and life insurance policies,” the RBI paper on “Financialisation of savings into non-banking Financial Intermediaries” said.
“The challenge, going forward, would be channelising these funds into productive segments of the economy,” said RBI general manager Manoranjan Dash in the paper, jointly authored with Bhupal Singh, Snehal Herwadkar and Rasmi Ranjan Behera.
The shift in savings behaviour was also aided by the introduction of goods and services tax (GST) and regulations such as the Real Estate (Regulation and Development) Act, 2016 (RERA) and the Benami Transactions (Prohibition) Amendment Act, 2016, the paper said.
“The recent deceleration in inflation, as also, inflation expectations, has had the effect of raising real incomes and returns for households, which may provide further impetus to financial savings,” it said.
RBI has published it as part of its new research series called ‘Mint Street Memos’ (MSM). It has also published another related paper on “Demonetisation and Bank Deposit Growth”, authored by Bhupal Singh, director in the Monetary Policy Department and Indrajit Roy, director in the Department of Statistics and Information Management.
They said that aggregate deposits grew by 14.5% year-on-year during the period November 11 to December 30, 2016, as against 10.3% during the year ago period, reflecting a 4.2 percentage point excess deposit growth due to demonetisation. In nominal terms, excess deposits work out to ? 3.8 trillion.
Demonetisation also helped rise in use of digital transactions with prepaid payment instrument (PPI) volumes growing 44% between November 2016 and June 2017.
RBI said the findings and views in this paper are entirely those of the authors and should not necessarily be interpreted as the official views of it.