Synopsis: Indian banks are experiencing a significant increase in borrowings, surpassing Rs. 9 lakh crore by late July 2024, as they face challenges in raising funds through deposits. This surge in borrowing, largely through short-term funding methods, is driven by a widening credit-deposit gap.
Indian banks have seen a marked increase in borrowings, crossing the Rs. 9 lakh crore threshold as of late July 2024.
This surge reflects the challenges banks are facing in raising funds through traditional deposits, leading them to increasingly rely on short-term funding methods such as interbank repo operations and tri-party repos.
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, 2024.
This represents a 19% increase from Rs. 7.84 lakh crore recorded on July 28, 2023, and a 20% rise from Rs. 7.75 lakh crore as of April 5, 2024.
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.
This borrowing trend is a direct result of a persistent gap between credit and deposit growth.
As of July 26, 2024, credit offtake had increased by 5.3% since December 2023, reaching Rs. 168.1 lakh crore.
This growth was primarily driven by increased personal loans and lending to Micro, Small, and Medium Enterprises (MSMEs).
However, sequential credit growth remained flat, largely due to measures by the RBI, such as higher risk weights on unsecured loans and a higher base effect.
On the other hand, deposit growth has been modest.
Deposits increased by 5.5% since December 2023, reaching Rs. 211.9 lakh crore by July 26, 2024, with time deposits being the primary contributor to this growth.
In absolute terms, deposits have expanded by Rs.11.1 lakh crore over the past eight months.
However, the growth has been insufficient to keep pace with the rising demand for credit, leading banks to intensify their efforts to strengthen their liability franchise through the issuance of certificates of deposit (CDs) at relatively higher costs.
The credit-deposit (CD) ratio has hovered around 80% since September 2023, reflecting the ongoing challenges in balancing credit and deposit growth.
As of July 26, 2024, the CD ratio stood at 79.3%, slightly lower than the previous fortnight.
Excluding the impact of recent mergers, the CD ratio was 77.3%, down from 77.6% on July 28, 2023.
In conclusion, the rising borrowings by Indian banks highlight the growing challenges posed by the widening credit-deposit gap.
While credit demand continues to rise, deposit growth has been relatively slow, forcing banks to rely on short-term market instruments to bridge the funding gap.
As banks continue to navigate these challenges, the focus will likely remain on strengthening their deposit base and managing their credit portfolios effectively.
Disclaimer: This article is for informational purposes only and should not be considered as financial or investment advice. Readers are advised to consult with a qualified financial advisor before making any investment decisions.
