Bank borrowings crossed the Rs 5 lakh crore mark for the first time in September 2022 as the rise in repo rates led to a decline in surplus liquidity. As on February 24, the average amount of outstanding loans purchased by banks was Rs. 4.2 lakh crore. This was up from Rs 2.6 lakh crore in the previous financial year 2021-22, RBI figures said.
Bank credit is likely to rise in the remaining fortnight of the financial year as liquidity conditions are seen to tighten significantly. These total borrowings are not only from domestic sources, but Indian banks also borrow from outside the banking system and abroad. Loans from RBI are not included in this.
Analysts said that the figures listed under the credit to commercial banks section of the RBI’s statistical annexure represent mostly short-term credit lines. They are funds like inter-bank repo operations and tri-party repos. Also issue of bonds is included in it. Certificates of Deposit are not included in it.
Regarding this, India Ratings & Research Director Soumyajit said, “The net amount raised by the banks through bond issue will be Rs.50,000 – Rs.60,000 crore. When credit growth is strong and stable, banks need to look for sustainable solutions such as higher deposits. They cannot lend by getting short term loans. Long term loans like bonds are good. Short-term loans cannot be implemented on a sustained basis.” He says.
There is not as much deposit growth as there is loan growth. Analysts note that there is a wide gap. According to RBI’s February 24 data, bank credit growth was 15.5 percent year-on-year. Deposit growth was 10.1 percent.
Cash balance decline
The surplus cash balance of banks, which was around Rs 7.4 lakh crore in April-May 2022, shrank to Rs 1.6 lakh crore last December-January. Strong credit growth, RBI’s sale of government bonds and RBI’s interventions in the foreign exchange market to maintain the rupee’s value have reduced the liquidity surplus.
In September, when bank loans crossed Rs 5 lakh crore for the first time, the Reserve Bank sold $1,000 crore in the currency market to keep the rupee from depreciating. RBI’s sale of dollars flushed rupee reserves out of the banking system.