Banking News

Bank borrowings increase by 67 per cent in 2023


MUMBAI: Borrowing by banks climbed last year, on average by as much as two-thirds in aggregate, as the central bank’s liquidity mop-up to tame consumer prices coincided with higher demand for credit and trailing deposit growth. HDFC Bank’s mid-July merger with mortgage-lending pioneer HDFC also caused borrowings to swell for mainstream lenders under the central bank’s watch.

Reserve Bank of India (RBI) data showed average bank borrowings on a fortnightly basis were at Rs 6.39 lakh crore from January 13 to December 15, 2023. That’s 67% higher than average fortnightly borrowing of Rs 3.81 lakh crore over the comparable period in 2022.

Figures listed under the ‘borrowings’ section for scheduled commercial banks in the fortnightly RBI data largely represent short-term funding routes, such as interbank repo operations and the use of tri-party repos, analysts said.

Issuances of instruments such as additional tier-1 bonds and infrastructure bonds are included in bank borrowing data, but certificates of deposits are not.

“For a large part of 2023, liquidity was at a deficit. Banks had no other option but to borrow. Secondly, with deposit rates rising, to protect their NIMs (net interest margins), banks had to look at various options to optimise their borrowing costs,” said Soumyajit Niyogi, director, India Ratings & Research.

Latest Reserve Bank of India data also showed that as on December 15, bank credit growth was at 20.2% year-on-year while deposit growth was at 14.0%. Credit growth has persistently outstripped deposit growth since April 2022.”Credit growth has been robust for two years back-to-back. Banks have had to look at various options to maintain their ALM (asset liability management),” Niyogi said.In 2023, fortnightly bank borrowing touched an all-time high of Rs 8.46 lakh crore as on September 8, almost Rs 3 lakh crore higher than the 2022 high of Rs 5.49 trillion, which was as on October 21.

The Merger Effect
While the largest component of banks’ liabilities is deposits, HDFC was a non-banking financial company (NBFC), which had a huge chunk of liabilities in the form of borrowing through bonds. After the merger, the liabilities of the erstwhile NBFC were registered as borrowings in the RBI’s data. It was in the fortnight of the merger that the bank borrowing figures topped the ?8 lakh crore mark, a level sustained until early December.

Analysts said that as the liquidity deficit, which had touched a near-eight-year high in December, is likely to continue, the trend of high borrowings could persist.

“I think this situation will continue until March. The major problem is going to be on the deposit side. Savers have become investors and are going to mutual funds. Stock markets are still doing relatively well so there will be an attraction for mutual funds, both equity or hybrid funds,” said Madan Sabnavis, chief economist, Bank of Baroda.


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