According to a SBI report, introduction of Rs 200 note will fill in the "missing middle" even as the new currency in circulation (CIC) has already reached 84 per cent of the pre-demonetisation level.
Cash with banks, a CIC component, has however witnessed a decline over November 2016 level, said the State Bank of India Ecowrap report.
The data for June 23, 2017 shows cash in hand with banks declining to 5.4 per cent of the currency in circulation from a high of 23.19 per cent for the fortnight ended November 25, 2016, it said.
Going by historical trends, cash in hand with banks is roughly 3.8 per cent of CIC and is currently at 5.4 per cent.
This means at least an additional amount of 1.6 per cent/Rs 25,000 crore of excess currency may be currently lying in ATMs and herein lies the importance of new Rs 200 notes which could serve as the "missing middle" it said.
The report added that Reserve Bank of India has recently "put orders" for it.
"The cash in hand with banks has been higher compared to the last year, because of demonetisation and the subsequent limits placed on withdrawals for some time. However, now the percentage is showing a decline and reaching pre-demonetisation levels", it added.
The report noted that though there has been a significant move towards relocating distribution of currency towards smaller denominations post demonetisation, there is a mismatch caused by the presence of Rs 2,000 denomination straight after Rs 500 denomination.
Moreover, an ATM machine typically holds 10,000 bills and if these were to comprise say only notes of Rs 100, the number and cost of replenishment goes up significantly.
"Herein lies the paradox. Notes of Rs 2,000 denomination in ATMs may find few takers because of missing middle/Rs 200 note", the report said.
The Reserve Bank is reportedly expected to introduce Rs 200 notes in the coming months to ease pressure on lower-denomination currencies that are in short supply.
The new notes of Rs 200 should be out before the end of 2017 and will greatly help in narrowing the demand and supply gap in smaller-denomination currency bills.