Indian banks have experienced a strong increase in market-instrument borrowing, surpassing the Rs 9 trillion threshold, as they struggle to close the ongoing deficit between lending and deposit growth.
As of July 26, scheduled commercial banks - which include payments, small finance, and regional rural banks—reported borrowings of Rs 9.32 trillion, as per statistics released by the Reserve Bank of India (RBI). Compared to the Rs 7.84 trillion registered on July 28 of previous year, this represents a 19% growth. Additionally, it represents a 20% increase over the borrowing amounts of Rs 7.75 trillion as of April 5 of this year.
All scheduled banks borrowed a total of Rs 9.37 trillion, an increase of 18.7% over the same period previous year of Rs 7.89 trillion. According to a report by a credible source, the RBI's weekly data shows that these borrowings are mostly indicative of short-term funding strategies including interbank repo operations and tri-party repos. The news article further mentioned that while certificates of deposit (CDs) are not included, bank borrowing data include the issue of extra Tier-1 bonds and infrastructure bonds. The issue of infrastructure bonds has notably increased in the last few months, which is indicative of banks' attempts to control liquidity and fulfill credit demand.
The study also showed that credit accretion was almost at Rs 22 trillion and deposit accretion was almost Rs 23 trillion for FY24, after the consequences of the HDFC merger were taken into account. Since credit accretion makes up over 75 - 80% of deposit accretion, banks are using market borrowings more and more to make up the difference. Additionally, banks are still being pushed toward short-term borrowing by daily liquidity mismatches.
The possible hazards connected to this tendency were recently brought up by Reserve Bank of India's Governor Shaktikanta Das at the central bank's policy announcement on August 8. He made the observation that, in an effort to accommodate the growing demand for credit, banks are turning more and more to short-term non-retail deposits and other liability instruments, which may put the banking system at risk of structural liquidity problems. Das also mentioned how retail consumers are becoming more attracted to alternate investing channels, which is making it more difficult for banks to secure money.
