The short-term market borrowings of banks have increased by a whopping 100 per cent, so far, in the current financial year as they seek avenues to fund the accelerated pace of loan demand, reported Business Standard.
According to the latest data released by the Reserve Bank of India (RBI), borrowings by banks increased to ₹5.49 trillion as on October 21, 2022, from ₹2.74 trillion as on March 25, 2022.
The figures, which are listed under the ‘borrowings’ section for scheduled commercial banks in RBI data, largely represent short-term funding routes, such as interbank repo operations and the use of tri-party repos, analysts said. Issuances of instruments, such as additional tier-1 bonds, are also included, they said.
The increase in bank borrowings picked up in earnest from June 2022 when the figure stood at ₹3.78 trillion (as on June 3). On March 26, 2021, bank borrowings were at ₹2.44 trillion.
The key driver of the huge increase in banks’ reliance on short-term market instruments to garner funds is the sharp decline in surplus liquidity, even as loan demand stays firm.
From around ₹7-8 trillion in April 2022, the liquidity surplus in the banking system shrunk to around ₹1.35 trillion in October. Over the past couple of months, there have also been instances of liquidity slipping into a deficit.
The tightening of liquidity comes at a time when the RBI is battling high inflation and hence, is withdrawing monetary accommodation.
With banks no longer being able to rely on the central bank’s fund infusions, the rush to mobilise funds has intensified.