Bank Deposits in India – Econometric Analysis of Macroeconomic Determinants

Abstract

In this paper, we examined various macroeconomic determinants of bank deposits in India using monthly data for period January 2011 to December 2015. The determinants are money supply, inflation, index of industrial production, Treasury bill rate, repo rate and stock market index measured by sensex, an index of shares of thirty companies listed in Bombay Stock Exchange. ADF and Phillips-Peron tests show that all variables are first difference stationary while Trace Test find 4 co-integrating vector at 4 lags. Hence Johansen Cointegration methods indicate that there is long run relationship among the variables and the Vector Error Correction model shows a satisfactory speed of adjustment. VECM estimates showed that money supply, index of industrial production and Treasury bill rates are statistically significant at various lags with the money supply having positive impact on the amount of deposits whereas IIP and Treasury bill rate have negative impact on deposits. Granger Causality test find that only index of industrial production granger cause deposits whereas deposits granger cause both money supply and Treasury bill rates. Impulse Response Function also shows similar results.

Keywords: Bank Deposits, macroeconomic determinants, Treasury bills rates, inflation, Money supply, Repo rate, Vector Error Correction Model, Granger Causality, and Impulse Response Function.