Banks borrowed a record Rs 1.19 lakh crore from the market to fund demand for loans while they could mobilised lesser deposits – Rs 1.02 lakh crore in early July, according to the latest Reserve Bank of India data (RBI) data, highlighting the challenges faced by banks in attracting depositors.
The war for deposits is set to intensify since budget has not announced any measures to attract depositors as regulators as well as the government have been directing banks to focus on core business of mobilising deposits.
Aggregate borrowings by banks at the system level amounted to Rs 8.83 lakh crore according to the RBI data published in its in its weekly statistical supplement (WSS) and it indicates the extent of non-deposit resources used to fund loan demand. An analysis of long-term data shows that such borrowings at the system level have gone up after the merger of the HDFC with HDFC Bank.
According to the RBI’s handbook on WSS ” Borrowings represent the total borrowings from outside the banking system apart from domestic borrowings. It also includes loans/borrowings from abroad by banks in India. Borrowings from the Reserve Bank of India are excluded from this item” These typically include short-term debt, infra bonds and even overseas debt.
The country’s largest lender State Bank of India among others raised Rs 10,000 crore worth infrastructure bonds during the fortnight of July 12 which is reflected in such borrowings .
” This is mainly due to a large size of funding needed to meet the loan demand and relative cost of bulk deposits is higher” said Madan SAbnavis chief economist at Bank of Baroda explaining why banks resort to such borrowings.
Total bank credit extended by the commercial banks in the country as of July 12 was up 14 percent over the same period last year. Deposits on the other hand were up 11.3 percent over the same period a year ago.
But an aggressive move to raise deposits could trigger a rate war, felt experts. ” When the liquidity in the system is inadequate, raising deposit rate will only lead to a series of rate wars’ ‘ Soumyajit Neogi, director, India Ratings. ” Banks are exploring every possible option to address the short term gap. However situation has started improving with the large dividend transfer by RBI”
Borrowing from the markets instead of pushing deposits tends to widen the credit-deposit gap which in turn has its own risks. ” The risks that can probably come is in case if this gap widens further, there could be a liquidity risk or there can be a rollover or repricing risk as far as their deposits are concerned” RBI deputy governor J Swaminathan had said at the post policy media conference earlier in June this year.
