Deposit Growth Surges As Investment In Mutual Fund Products Strengthens

As per the latest data released by the Reserve Bank of India (RBI), deposit growth at Indian banks has accelerated after remaining low for two consecutive months. The data further revealed that bank deposits rose close to 14% year-on-year in the fortnight to August 8. The major reason behind this was an increase in the mutual fund investments.

Experts believe that a strong deposit growth may persuade banks to bring down deposit rates, eventually lowering lending rates as well. At the same time, experts feel that increasing rate of inflation, however, can act as a spoilsport.

According to NS Venkatesh, executive director at IDBI Bank, "As and when the government starts spending, the system liquidity will improve and that will translate into a higher deposit growth. Rates may fall in January-March quarter once the inflation falls in its glide path. Currently, the credit growth is sluggish, but will pick up."

Retail or consumer price index-based inflation increased to 7.96% in July as compared to 7.46% in June. RBI is aiming to restrict it at 8% by January 2015, and 6% by 2016.

Earlier this month, the RBI clarified that it would continue to monitor inflation closely.