Deposit accretion has been steadily eroding. For instance, while net addition to deposits amounted to Rs 10,654 crore in April 1999, it fell to Rs 2,153 crore in May, and further to a mere Rs 1,694 crore in June.

One way of measuring liquidity available with banks is to compute the accretion to deposits and deduct the creditofftake. That gives the extra money banks have to invest in gilts, commercial paper, bonds. A look at the table will show that this liquidity has been decreasing every month, with the excess of deposit inflow over credit outflow getting reduced every month, from Rs 6,743 crore in April to Rs 240 crore in June. Taking the comparative period last year, the excess of accretion to deposits over additional credit fell from Rs 8,368 crore to Rs 4,590 crore over the same period. Clearly, liquidity with banks is under strain.

Economists say that one reason for the big decline in June was on account of the Kargil conflict, as corporates converted their deposits into dollars. The long-term decline in deposit accretion, however, is seen as further evidence of an industrial revival, with demand for consumer goods picking up. In fact, the counterpart of the low growth in deposits is the high growth in "currency with the public", the rate of growth of which has increased from 5.3 per cent in July 1998 to 16.21 per centby May this year. This indicates higher transaction demand for money, which means demand for goods is increasing. In other words, with a recovery, there is a shift from financial to physical assets, which finds reflection in lower deposit growth. Evidence of an industrial turnaround is also supported by the fact that non-food credit has declined by only Rs 1,807 crore this fiscal to July 2 compared with a decline of Rs 5,339 crore during the same period of the slack season last year.