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13-May2019

Economic growth, high disposable income to aid banks' deposit mobilization: RBI research

The Reserve Bank of India (RBI) research in its lasted report has said that accelerating the rate of growth of the economy and disposable incomes holds the key to higher deposit mobilisation by the banking system. It further stated that the slowdown in bank deposit growth in the recent period alongside a revival of credit demand raised concerns about a structural liquidity gap in the system, possibly amplified by substitution effects of small savings and mutual funds on bank deposits in the aftermath of demonetization.

It highlighted that outstanding deposits of scheduled commercial banks (SCBs) at Rs 1,25,726 billion as on March 31, 2019 accounted for 128.7 per cent of outstanding bank credit (lower than 132.5 per cent a year ago), reflecting the tightening of financial conditions on account of low deposit growth. Besides, it mentioned that noting that the bank deposits remain an important part of the financial savings of households and key to the financing of bank lending, deposit growth is picking up in recent months in a cyclical upturn since December 2018, which is overwhelming a trend slowdown that has been underway since October 2009.

In order to address the issue of structural liquidity gap, the RBI in recent months took several initiatives including Open Market Operations and dollar rupee swap auction. Besides,  it highlighted that the widening wedge between credit and deposit growth is triggering concerns about a structural liquidity gap in the system, which can throw sand in the wheels of the financial intermediation process through which deposits are converted into productive investments by way of lending, thereby greasing the wheels of the economy.


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