Bank loan | Representative image
Banks in India have seen a sharp rise in their lending through market instruments, crossing the Rs 9 trillion mark, as they grapple with a persistent gap between credit growth and deposit growth.
According to data from the Reserve Bank of India (RBI), as of July 26, scheduled commercial banks, including regional rural banks, small finance banks and payments banks, reported loans of Rs 9.32 trillion. This marks a 19 per cent increase from the Rs 7.84 trillion recorded on July 28 last year. It is also 20 per cent higher compared to the loan figures of Rs 7.75 trillion for April 5 this year.
Overall, borrowings of all scheduled banks reached Rs9.37 trillion, up 18.7 percent from Rs7.89 trillion in the same period last year.
The RBI’s fortnightly data highlights that these loans represent mainly short-term funding methods such as interbank repo operations and tripartite repos, according to a report by The Economic Times. The press report also noted that the bank borrowing figures include additional issuances of Tier 1 bonds and infrastructure bonds, although certificates of deposit (CDs) are not included. Notably, infrastructure bond issuance has accelerated in recent months, reflecting banks’ efforts to manage liquidity and meet credit demand.
The report further stated that adjusted for the effects of the HDFC merger, deposit build-up for FY2024 was around Rs 23 trillion, while credit build-up was close to Rs 22 trillion. With credit build-up constituting over 75-80 per cent of deposit build-up, banks are increasingly turning to market borrowing to fill the gap. Daily liquidity mismatches also continue to push banks into short-term borrowing.
Reserve Bank of India Governor Shaktikanta Das recently mentioned the potential risks associated with this trend during the central bank’s August 8 policy statement. He noted that banks are increasingly relying on short-term non-retail deposits and other liability instruments to meet rising credit demand, which could expose the banking system to structural liquidity problems. Das also referred to the growing attractiveness of alternative investment avenues for retail customers, which further complicates the funding landscape for banks.
First published: August 20, 2024 | 11:54 am IS
Disclaimer:
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.