Demonetisation effect: Deposits grow even after rate cuts by banks
MUMBAI: Demonetisation has resulted in a rise in deposit growth at a time when banks have reduced interest rates on term deposits.
Deposits rose 13.9% or Rs 12.7 lakh crore to Rs 105 lakh crore against a 10% rise last year, according data released by the Reserve Bank of India.
“The surplus liquidity in the banking system, created by demonetisation, will lower borrowing costs and increase the access to credit. This will boost economic activity with multiplier effects,“ said Arun Jaitley, finance minister, during the Union Budget speech on Wednesday.
This growth was spurred by conersion of cash and currency into version of cash and currency into deposits as the government banned . 500 and ` ` . 1,000 notes on November 8 in its effort to fight black money .People were forced to deposit their old high-value currency notes with banks over November and December last year and the central bank released cash at a slow pace.
While deposits grew, credit growth didn't pick up as it remained muted at around 5% with total outstanding bank credit standing at Rs 74 lakh crore.
As a result, banks were forced to park surplus funds in government bonds which helped lower yields which, in turn, has helped the government raise cheaper funds.
The pace of deposit growth can slow down in the coming months with more and more new currency coming back into the system.
Deposits rose 13.9% or Rs 12.7 lakh crore to Rs 105 lakh crore against a 10% rise last year, according data released by the Reserve Bank of India.
“The surplus liquidity in the banking system, created by demonetisation, will lower borrowing costs and increase the access to credit. This will boost economic activity with multiplier effects,“ said Arun Jaitley, finance minister, during the Union Budget speech on Wednesday.
This growth was spurred by conersion of cash and currency into version of cash and currency into deposits as the government banned . 500 and ` ` . 1,000 notes on November 8 in its effort to fight black money .People were forced to deposit their old high-value currency notes with banks over November and December last year and the central bank released cash at a slow pace.
While deposits grew, credit growth didn't pick up as it remained muted at around 5% with total outstanding bank credit standing at Rs 74 lakh crore.
As a result, banks were forced to park surplus funds in government bonds which helped lower yields which, in turn, has helped the government raise cheaper funds.
The pace of deposit growth can slow down in the coming months with more and more new currency coming back into the system.
