RBI figures exposed! Loans are increasing more than deposits since last 8 months

The business in the country’s money market has created a new record. Activities in the money market have intensified due to large scale borrowing by government banks to meet the increasing demand for loans. According to Bloomberg data, turnover in the tri-party repo (TREPS) segment reached an all-time high of Rs 5.5 lakh crore on May 13. This segment accounts for about 70 percent of India’s total money market. Despite this, the level of business remains high.

Demand for loans remains due to economic strength

Despite the energy crisis caused by the war between America and Iran, the Indian economy is growing strongly. This is the reason why the demand for loans from industries and businesses remains constant. According to CS Shetty, Chairman of State Bank of India (SBI), the demand for loans in sectors like power, renewable energy and data centers remains strong. Due to increasing investment in these sectors, banks are in need of more funds.

Borrowing costs have increased, the challenge of raising deposits remains

The impact of the increasing funding needs of banks is also visible on the money market. Overnight borrowing costs and short-term bond yields have increased in recent weeks. This is an indication that banks are still having difficulty in raising sufficient deposits. Investors are turning to mutual funds, stock markets and other investment options instead of traditional bank deposits, making it challenging for banks to raise cheap capital.

Kanika Pasricha, Chief Economist of Union Bank of India, says that in the current circumstances, the money market has become the cheapest and easiest funding source for banks. Therefore, banks are using this market more to meet their needs.

Loan increased at the fastest pace in two years

According to the latest data from the Reserve Bank of India, bank credit has grown at the rate of 16.2 percent in the year till May 15, which is the fastest growth in the last two years. At the same time, for the eighth consecutive month the demand for loans was more than the growth in deposits. The gap between loan and deposit growth has widened to nearly 400 basis points, the highest level in almost two years.

Experts believe that if loan demand remains strong and deposit growth remains relatively slow, then money market turnover and bank lending may remain at high levels in the coming months.