Money Supply Growth aided by increasing deposits with banks

The rise in demand and time deposits with banks helped the growth rate in Money Supply (M3) to cross the Reserve Bank of India's (RBI) projection of 13%. The improvement in deposit growth has been due to the FCNR(B), or foreign currency non-resident (bank), deposits, which have increased dramatically, thanks to RBI. In the three-month period between September and November when the RBI announced a special concessional dollar swap window to attract FCNR (B) deposits and foreign currency borrowings through which it raised $34 billion, thereby providing enough stability to rupee, Indian banks have emerged on top in mobilising the deposits. Under this window, banks were offering up to 3.5% fixed rate of interest on deposits ranging between one and three years. The bank deposits increased following the last policy announcement by RBI and resultant hike in deposit rates by various banks. While banks have changed rates across various maturities, most upward revisions have been seen on the shorter tenures in the category of deposits below Rs 1 crore. Moreover, the growth in currency with the public also accelerated.

M3 increased 9.8% till 13 December 2013 during 2013-14 compared with a 8.6% rise in the same period a year ago. However, the annual growth rate at 15.1% crossed the Reserve Bank of India's indicative trajectory as on 13 December 2013, and higher than the 13.1% increase a year ago, mainly due to the rise in both demand deposits and time deposits with banks on annual basis. Nearly after 24 months the money supply registered a growth of 15% annually. Moreover, the growth in currency with the public, another major component of broad money, also accelerated. The professional forecasters have kept the money supply (M3) growth to be same at 13% in 2013-14.

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