Everyone is aware about the demonetization policy of the government by banning Rs. 500 & Rs. 1000currency notes. One can understand that it would have a pretty bad impact on SMEs, small traders, real estate, transport sector, consumer durable goods industry. Not only these sectors but it would major affect the rural areas business as over there, majority of the transactions are made in cash. The ban of Rs. 500 and Rs. 1000 currency notes will impact those industries where hardcore cash transactions are made. Demonetization will affect the liquidity, but for a short-term Demonetization is a tool to battle Inflation, Black Money, Corruption and Crime, discourage a cash dependent economy and help trade. Its policy of the government by banning Rs. 500 and Rs.1000 currency notes has influenced all almost all the corner of the economy. Its effect on Banking Sector is significant as Bank is a center for channeling the legal tender money to all needs of the society. The biggest beneficiaries of demonetization are Banks. It made the banks to accept the deposits without any cost of promotion and drastically increased liquidity position of the banks. The present study is made out of available literature on post demonetization. It portrayed the effect of demonetization on Banking Sector. It encompassed the recent decision of the central government on Demonetization and its gradual effect on Indian banking sector.