Indian banks saw a significant increase in borrowing through market instruments, surpassing the Rs 9 lakh crore mark as of late July as they struggled to raise funds through deposits. According to data from the Reserve Bank of India (RBI), scheduled commercial banks, including regional rural banks, small finance banks, and payments banks, reported borrowings of Rs 9.32 lakh crore as of July 26. This represents a 19% rise from Rs 7.84 lakh crore recorded on July 28 of the previous year, and a 20% increase from Rs 7.75 lakh crore on April 5 of this year.
Overall, the total borrowings of all scheduled banks reached Rs 9.37 lakh crore, up 18.7% from Rs 7.89 lakh crore a year earlier. These borrowings largely consist of short-term funding methods, such as interbank repo operations and tri-party repos. Additionally, the increase includes the issuance of additional Tier-1 bonds and infrastructure bonds, though certificates of deposit (CDs) are not part of these figures.
Widening gap
The borrowing surge comes as banks face a persistent gap between credit and deposit growth. Credit offtake increased by 5.3% compared to December 2023, to reach Rs 168.1 lakh crore as of July 26, 2024. Growth in personal loans and MSMEs continues to account for this increase. Meanwhile, sequentially credit growth remained flat. This slowdown can be attributed to RBI measures like higher risk weights on unsecured loans and a higher base effect, according to a CareEdge report.
Deposits rose at 5.5% compared to December 2023 and reached 211.9 lakh crore as of reported July 26, 2024), driven by growth in time deposits. Sequentially deposits increased by 0.1%.
The Short-term Weighted Average Call Rate (WACR) has remained the same at 6.47% as of August 2, 2024, compared to 6.39 as of August 4, 2023.
Deposit growth
Meanwhile, in absolute terms, deposits have expanded by Rs 11.1 lakh crore over the last 8 months. Deposits would continue to be prominent in FY25 as banks intensify efforts to strengthen their liability franchise. The banks are also sourcing funds via the certificates of deposits (at a relatively higher cost) which have shown significant traction. This focus aims to prevent constraints on credit uptake due to deposit growth.
The CD ratio has been generally hovering around 80% since September 2023. The CD ratio saw a decrease of 5 bps, compared to the previous fortnight, and stood at 79.3% for the fortnight (July 26, 2024). If we exclude the merger impact, the CD ratio for the current fortnight stood at 77.3% compared to 77.6% on July 28, 2023.
