The gap between deposit and credit growth has narrowed from 8 percentage points in December to 2.7 percentage points in June, with higher interest rates spurring deposit growth and slower economic activity leading to a moderation of credit growth. Nomura Research says that this bodes well for the banking system liquidity.
Also see | Gap between deposit and credit growth narrows (PDF)
If this continues, banks could not only stay away from high-cost deposits, but also end up diverting excess inflows into statutory liquidity requirement securities—mainly government securities. The increased bank demand for government securities should be positive for yields, economists at the brokerage say.
Graphic by Sandeep Bhatnagar/Mint
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