Abstract:
The Indian government revealed the demonetization of ₹500 and ₹1,000 currency
notes on November 8, 2016, therefore eliminating more than 86% of the coins in
circulation. Designed to fight black money, fake currency, and promote a move
toward a digital and open economy, this abrupt and important policy change sought to
do so. The statement resulted in quick turbulence in all industries, but particularly in
the banking sector, which had to handle the operational load of currency conversion
and a sharp increase in digital transactions. Although much research has been done on
how demonetization affects cash flow, credit disbursal, and liquidity in the banking
industry, its influence on non-fund-based income (NFBI), a main source of income for
banks, is still somewhat unknown. The goal of this study is to close the gap between
what we know and what we need to know by looking at how demonetization affected
the NFBI of Public Sector Banks (PSBs) in India.
NFBI is the money banks make from things besides interest, such as fees for using
ATMs, sending money, keeping things in lockers, and other banking services, as well
as commissions and service fees. Banks, particularly PSBs, are depending more and
more on NFBI to preserve profitability and guarantee financial stability as
competition gets tougher and interest margins drop. Given this backdrop, knowledge
of how NFBI changes following a policy event like demonetization can help to direct
future banking plans and reforms.
Using a comparative and analytical method, this research looks at how NFBI trends
altered both before and after demonetizing. It looks at a small number of big
government-owned banks in India and uses data from yearly financial reports,
performance reviews, and regulatory papers for the years 2013-14 to 2019-20. The
data has been classified into two distinct phases: the pre-demonetization period (2013-
14 to 2015-16) and the post-demonetization period (2016-17 to 2019-20). The aim is
to determine whether the NFBI of these banks was significantly affected by the
demonetization policy and to what degree the change in income patterns could be
ascribed to this policy intervention.
The study looks at the variation in NFBI throughout the chosen time range using
quantitative techniques including ANOVA (Analysis of Variance) and paired t-tests.
These methods allow for a robust statistical analysis of whether observed changes in
NFBI are significant or due to random fluctuations. Ratio analysis is another feature
of the study whereby NFBI is computed as a percentage of total income for every
bank. This permits a relative comparison that takes into account differences in general
income levels.
