'Economic growth, high disposable income to aid banks' deposit mobilisation'

Accelerating the rate of growth of the economy and disposable incomes holds the key to higher deposit mobilisation by the banking system, says an RBI paper.

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 demonetisation, as per an article published in the latest monthly bulletin of the RBI.

To address the issue of structural liquidity gap, the Reserve Bank of India (RBI) in recent months took several initiatives including Open Market Operations and dollar rupee swap auction.

The article 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