Nine months after India’s radical demonetisation exercise, the financial sector is still grappling with its complex implications. The sudden withdrawal of high-value notes sent Indians rushing to banks to deposit the condemned currency. The central bank estimates that the intervention had boosted bank deposits between 2.8-trillion rupees and 4.3-trillion rupees ($43.7bn and $67.1bn) as of the end of March. India’s dominant state-owned banks, ailing under a stubborn burden of bad loans, have struggled to translate this cheap funding into strong lending growth. The slack is being taken up by their healthier private sector rivals, which are promising consumer credit without the lofty interest charged by informal moneylenders. At IndusInd Bank, a big private lender, consumer loans rose 22% in the year to June. "The first loan is used to repay the loan shark," Romesh Sobti, IndusInd’s CEO, says. "This enables the second loan, and the third loan, which lift people out of poverty." The ban...

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