Borrowings by banks hit a 8 month high of ₹ 5.05 lakh crore
- July 10, 2023
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Borrowings by banks hit a 8 month high of ₹ 5.05 lakh crore
Subject : Economy
Section: Monetary Policy
In News: Outstanding market borrowings of banks touched an eight month high of ₹5.05 lakh crore as of June 16, the highest since October 21, as per data in the Reserve Bank of India’s weekly bulletin.
Key Points:
- Banks borrow using various short term and medium term tools (see box) to meet their immediate liquidity needs arising through various reasons and for effective asset-liability management.
- The present surge is expected to have been driven by short-term fund requirement of banks owing to quarterly advance tax payments
- It is based on RBI’s fortnightly data, which tracks the short-term money market borrowings by banks in the form of interbank repo operations and tri-party repos.
- Recently RBI updated the master directions Reserve Bank of India (Call, Notice and Term Money Markets) Directions, 2021 allowing banks (only Commercial Banks and not SFBs) to set their own limits for call and notice money borrowings, in addition to the existing facility available for term money borrowings. The move was taken with a view to allow more flexibility and help banks better manage their liquidity requirements, and is expected to support banks’ market borrowing going ahead.
- In June, the tightening liquidity conditions resulted in higher money market rates, causing banks’ borrowing costs to rise. Still Banks are experiencing high growth of short term borrowing owing to various factors:
- significant demand for credit, particularly for short-term loans
- slow deposit growth.
- quarterly advance tax payments
- Outstanding market borrowings of scheduled commercial banks had risen to ₹4.6 lakh crore as of March 2023 from ₹2.7 lakh crore a year ago.
- Borrowings also include securities such as additional tier-1 bonds (Bonds, which are counted towards equity, have not fixed maturity period, and can be written off in case of extreme capital shortfall) and infrastructure bonds.
Call, Notice and Term Money Markets
Why the 14 day limit for short term?
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