We are planning to run all the automation tests in qa instance and the db which will be used by the instance will keep all the data after completion of the tests also . We are planning not to tear down the db after each test run . Once on a month, we will restore the original db and all the data created by the test scripts so far will be deleted that time (i.e once in a month). Till that time all the data created by the tests will remain in the db . For this reason we are planning to create test data dynamically (may be adding a standard string with time stamp). Please advise , is this a standard approach OR do you foresee any issue in this approach ?

Nope, creating data before each test is a good idea