More Money Gets Accounted In The Country With The Increase In The Deposits Of Banks

Recent reports from RBI state that the percentage of deposits in banks has surged in July-September Q2 (quarter-on-quarter) compared to the previous quarters.

Let us take a look at the deposit percentages of different banks:

• In State Bank of India (SBI), deposits grew 4.3 per cent in Q2 compared to 1-3 per cent rise in previous quarters
• In Punjab National Bank (PNB), deposits surged 3.8 per cent in Q2, against growth of 1.6-0.8-0.2 percent growth in the deposits in the last few quarters respectively.
• Union Bank (UBI) saw a contraction of deposits in the previous quarter of 1.2 per cent. But they made a growth of 6.7 per cent in Q2 deposits.
• Bank of Baroda (BoB) deposit growth was at 1 per cent in Q2 versus contraction in previous three quarters.

Though questions have been raised on the sudden spike in deposits with banks in September 2016, ahead of the government announcement to withdraw old Rs 500 and Rs 1,000 notes out of circulation, finance minister Arun Jaitley said that the spike in deposits was primarily on account of payout of arrears of 7th Pay Commission.

Indian Express reported, Abheek Barua, chief economist at HDFC Bank said “The rise in deposits in September is partly seasonal and in Y-o-Y terms the numbers do not look that stark. Also, around September, cash gets built-up in the system ahead of the festive season and that leads to rise in deposits. Government’s fertiliser subsidy payout and money related to spectrum auction could have also lifted the deposits.”

The Logical Indian take
Some people are arguing that the timing and nature of the rise in deposits at the banks in the last quarter is suspicious, as there was no such upturn in the economy at that particular time apart from the demonetisation step announced last week. But this is purely speculative, and such theories should not be propagated without proof from credible sources.