Banks raise costly funds as credit jump beats deposits

The frenzy for credit is forcing banks to issue costly certificates of deposit and tap a central bank window for money, at a time of scarce liquidity and weak deposit growth.

- Shayan Ghosh

The government's cash balances with the central bank stood at about ₹3.8 trillion on Thursday, and bankers hope the situation will improve when government spending picks up, and money finds its way into the banking system.

Liquidity deficit stood at ₹2.6 trillion as on 22 February, slightly lower than ₹2.8 trillion on 21 February, as per data from Bloomberg, but has nonetheless stayed in deficit since 8 December.

"Because credit offtake is quite strong, banks are managing the shortfall in deposits with short-term borrowings," said Arun Bansal, executive director, IDBI Bank. "Banks are dipping into their SLR securities-government securities and other sovereign papers and given that everyone is sitting on surplus SLR, it can be used in such situations to borrow funds through tri-party repos at 6.3-6.8% and at 6.75% from the marginal standing facility (MSF) window," Bansal added.