Understanding the Effects of De-Legalisation on Bank Account Holders

This study provides insights on the impacts of demonetization among low-income bank account holders and their change in behaviour, attitudes, and perceptions towards digital payments.

on November 8, 2016, the Government of India implemented the demonetization of all Rs.500 and Rs.1000 notes. This move resulted in wiping out 86% of cash in circulation in the country. Demand for the newly introduced denominations of Rs.500 and Rs.2000 resulted in a major cash crunch throughout the country. This study examines the short-term and long-term effects of demonetization on low-income households who, although being formally financially included, are most prone to adverse effects of demonetization policy owing to their socio-economic, demographic and occupational profiles. The study documents trends and patterns in financial and economic behaviour post-demonetization as well as understand the difference in adoption and use of digital financial services before and after demonetization.
Conducted in peri-urban areas of 4 states (Maharashtra, Meghalaya, Tamil Nadu, Uttar Pradesh), this study comprised of 3 rounds of the survey between April 2017 and February 2018. It was conducted among low-income households with an annual household income of less than or equal to Rs. 1,50,000. The study employed a design that captures the effects of demonetization over time. Bank account usage, credit and savings patterns, expenditure patterns and adoption and use of digital financial services were the short-term changes in financial behaviour examined. The perceived long-term effect on digital payments and savings behaviour was also examined.

Key Findings
Anecdotal evidence from the study suggests that demonetization did have a significant short-term impact on the livelihood of low-income financially included study respondents. Findings suggest that in the short-term, demonetization might have forced people to tweak their financial behaviour depending on the availability of cash, causing substantial discomfort in terms of making necessary expenditures and investments. Results also indicate considerable struggle to find employment for those working as casual labourers or on temporary employment. In the long-term, results from follow-up rounds suggest little to no change in savings behaviour after more than a year post-implementation of the demonetization policy. They also present no evidence of take-up and usage of digital financial services among our study respondents, classified as low-income already banked individuals.


This study makes an important contribution in understanding and documenting the short-term and long-term impact of the de-legalisation of banknotes in India, on low-income segments. Further research is needed to examine the factors that can enable low-income groups to transition to digital payment platforms. 

Thematic Area

Financial Well-being and Social Protection

Project Leads

Preethi Rao, Suraj Nair


Tamil Nadu, Maharashtra, Meghalaya, Uttar Pradesh