Deposit growth upsurges, while credit growth stagnates

The demonetisation move acted as a boon for the banks to boost deposit growth even when banks reduced interest rates on term deposits while the credit growth remained muted at around 5 per cent with total outstanding bank credit at Rs 74 lakh crore.

According to the Reserve Bank of India, deposits hiked by 13.9 per cent or Rs 12.7 lakh crore to Rs 105 lakh crore against a rise of 10 per cent reported last year. Due to demonetisation, high value notes were depositied in the months of November and December, followed by releasing of cash at a slow pace by the central bank.

As a result of this, the government had to park their funds in Gisec bonds, which helped lower yields in return and helped the government to raise cheaper funds.