How Demonetization May Actually Help ICICI Bank

Demonetization may boost e-commerce in India and assist ICICI Bank's growth strategy.

India is the fastest growing major economy in the world, growing at twice the rate of the rest of the world.ICICI Bank presents a great way to play this growth as the bank is directly linked to the growth of a rising middle class of consumers.

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Indian Demonetization – A bold move with long term benefitsOn November 8, 2016 the Government of India announced the demonetization of its small 500 and 1000 INR bank notes in a bold effort to crack down on corruption and black market activity.

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 In the days and weeks that followed, the government was faced with complaints and protests as the cash shortages that resulted created economic disruptions. The stock market wasn't safe either as the NIFTY 50 fell 6% the day after the sudden announcement.

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 Economists revised downwards their estimates for GDP and inflation as the widespread understanding was that there simply wouldn't be enough cash to go around.Over the ensuing weeks the demonetized notes were deposited into the banking system and by January 10, 2017 nearly 60% of the value of the 500 and 1000 INR bank notes were re-introduced in the form of new 500 and 2000 INR bank notes.The process is ongoing and at this point it should be only a matter of time before the full force of the country's currency float is bank in the hands of the Indian people.

Short Term Pain, Long Term Gain

While obviously disruptive to the economy in the short term, there were many who came out in support of the move at the time of the announcement. Obvious supporters were those who are champions of a curb on illegal activity as that was the primary motivation for the decision. Also, from the government's perspective, officials should be expected to have an easier time managing and collecting the impending value-added Goods and Service Tax with fewer counterfeit notes in circulation.

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But the group that caught my attention amidst all the discussion were those in the business community that spoke out in favor of the demonetization.

Among those, Anand Mahindra from Mahindra Group, Sajjan Jindal from JSW Group, and Infoysys founder N. R. Narayana Murthy praised the move, some adding that it would accelerate e-commerce within the country.

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Source: Seeking Alpha