Demonetization Effect on Digital Banking

Abstract

The adoption rate of digital modes of transactions was very low until in November 2016, the Government of India announces the biggest demonetization in the history of India, banning the use of Rs. 500 and Rs. 1000 currency notes from the midnight of 8th November 2016. Within a few days digital modes of transactions became inevitable due to extreme scarcity of new notes and reduced ATM withdrawal level. Digital transactions increased by lips and bounds which was one of the promulgated objectives of demonetization. But did demonetization cast a long term positive impact in changing the Indian economy from cash based to cash less? Did digital modes of transactions manage to attract more and more customers even when remonetization process was over? Our study is a rigorous attempt to find out the answers to the above questions. We have used secondary data relating to number of transactions under various digital payment modes offered by banks to objectively verify whether there is any significant growth in digital payment instruments post demonetization using appropriate statistical tools. Our analysis confirms the claim of the Government that demonetization, indeed, has helped India to take a giant step towards a digital or cashless economy.