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RBI Research Explains The Decline In Bank Deposits

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A research article published by the Reserve Bank of India's in its May 2019 monthly bulletin explains that the fall in the number of deposits in recent times is not due to higher returns offered by other investment instruments.

The article titled "Bank Deposits: Underlying Dynamics," written by researchers at the Department of Economic and Policy Research and Department of Statistics and Information Management, RBI, states that the rate at which the country's economy grows and the extent of disposable income in the hands of the people decides the number of deposits.

RBI Research Explains The Decline In Bank Deposits
 

Bank deposits being both an important part of savings made by households and the key to financing bank lending, have been on a slowdown trend since October 2009, it said. Their research evidence shows that "income as its most important determinant, both in the short-and in the long-run" for the behaviour of bank deposits.

It further said, "interest rate matters for deposit mobilisation but only at the margin."

The research was conducted following the debate around the slowdown in growth of banking deposits which attracted attention "in the context of revival of credit demand that has taken hold since November 2017 when bank credit growth rose to 9.3 per cent from an all-time low of 4.4 per cent in February, 2017, after a 75-month prolonged deceleration."

The increasing gap between the credit and debit growth brought concerns about a structural liquidity gap in the system to light.

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