RBI data showed that bank credit grew by 17.17% year-on-year for the fortnight ended November 18.
Mumbai:
Analysts said Indian public sector banks, which have sold government bonds in the last few sessions, may not become immediate buyers as they focus on cutting investments under the Statutory Liquidity Ratio (SLR).
State-owned banks sold bonds worth more than 304 billion rupees ($3.69 billion) in the last 25 trading sessions through December 6, data from the Clearing Corp of India showed.
Bank of Baroda (BoB) general manager-treasury Sushant Mohanty said, “Banks are facing liquidity crunch while SLR levels are more than adequate. There will be moderate buying by public sector banks.”
SLR is the minimum percentage of deposits that commercial banks are required to invest in liquid assets such as government bonds and state debt.
Banks are mandated to invest 18% of their total deposits in SLR securities, but according to traders they have invested around 26%-28% in such notes.
Senior dealers of state-run banks confirmed that part of the sale has been done to free up funds invested in SLR securities, while banks are also looking to book profits and divert funds to lending Because credit growth is picking up.
RBI data showed that bank credit grew by 17.17% year-on-year for the fortnight ended November 18.
Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, said, “Apart from booking profits, state-run banks are liquidating to meet credit requirements, as deposit rates are rising and the cost of funds will go higher.”
In November, state-run lender Punjab National Bank had said that if necessary the bank could deduct excess SLR reserves to boost credit flow, while in September, Reserve Bank of India governor Shaktikanta Das said that Banks can increase systemic liquidity by reducing excess cash. Reserve Ratio and SLR.
“The fall in yields has given banks a much-needed opportunity to diversify funds from bond investments into the real business of lending. This has been done across the spectrum,” said a trader at a state-run bank.
India’s benchmark 7.26% 2032 bond yield fell as low as 7.18% last week, down 35 basis points over the past month, on hopes of a slowdown in the pace of rate hikes. However, according to traders, the yield is unlikely to fall further from the current levels. The benchmark yield was last seen at 7.26%.
BoB’s Mohanty said, “I don’t see a big change in yields.”
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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