
Indian banks are experiencing a significant increase in their market borrowings, surpassing the Rs 9 trillion mark. This rise is attributed to a persistent imbalance between credit growth and deposit growth.
Current Borrowing Figures
As of July 26, 2024, scheduled commercial banks, which include regional rural banks, small finance banks, and payments banks, reported borrowings amounting to Rs 9.32 trillion. This figure represents a 19 percent increase from Rs 7.84 trillion reported on July 28 of the previous year. Additionally, it is 20 percent higher than the Rs 7.75 trillion recorded on April 5 of the same year. Overall, the borrowing across all scheduled banks reached Rs 9.37 trillion, marking an 18.7 percent increase from Rs 7.89 trillion at the same time last year.
Nature of Borrowings
The Reserve Bank of India’s (RBI) fortnightly data indicates that these borrowings are predominantly short-term funding methods, including interbank repo operations and tri-party repos. The borrowings also encompass issuances of additional Tier-1 bonds and infrastructure bonds, although certificates of deposit (CDs) are excluded from this figure. Recent months have seen a surge in infrastructure bond issuances, reflecting banks’ efforts to manage liquidity and meet credit demand.
Deposit and Credit Accretion
For the fiscal year 2024, deposit accretion was around Rs 23 trillion, while credit accretion was close to Rs 22 trillion. With credit accretion making up more than 75-80 percent of deposit accretion, banks are increasingly relying on market borrowings to bridge the gap. Daily liquidity mismatches also contribute to the growing trend of short-term borrowing.
Potential Risks and RBI Concerns
RBI Governor Shaktikanta Das recently highlighted potential risks associated with this borrowing trend during the central bank’s policy statement on August 8. He expressed concern that banks are increasingly turning to short-term non-retail deposits and other liability instruments to meet rising credit demand. This trend could lead to structural liquidity issues within the banking system. Additionally, Das noted the growing appeal of alternative investment avenues for retail customers, which further complicates the funding landscape for banks.