Banks borrowings from RBI rise 331% to Rs 1 trn by mod-November: Data

Banks have been raising a large amount of funds through the Reserve Bank of India’s (RBI) liquidity window in the last two months. RBI data shows that borrowings by commercial banks from the RBI has grown by 331.6 per cent, year-on-year, to Rs 1.06 trillion by mid-November.

In the same period during November 2017, banks had borrowed Rs 247 billion from the RBI’s repo, reverse repo and term repo and other liquidity adjustment facilities (LAFs).

Bank credit growth is up by 14.88 per cent to Rs 91.1 trillion, as of November 09, compared to Rs 79.3 trillion, one year ago.  As against April this year, bank credit has grown by 7.8 per cent as of November 09.

Data shows that bank borrowings from the RBI averaged between at Rs 400 billion in FY2018, culminating a whopping Rs 1 trillion being raised on March 16 and Rs 2.74 trillion raised on March 30.

Whereas in FY2019, so far, the average borrowings of banks from the RBI has moved upwards to Rs 800 billion, and stands at Rs 1.06 trillion as of November 09.

In the five weeks prior, banks’ borrowing (outstanding) from the RBI stood at Rs 805 billion on September 15, Rs 1.8 trillion on September 28, Rs 1.2 trillion on October 12 and Rs 1.32 trillion by October 26.

According to CARE ratings, Rs 1286.6 billion worth of OMO purchases took place between April 01 and November 23, of which Rs 980 billion was purchased in the last three months.

Stemming from the default by Infrastructure Leasing and Financial Services (IL&FS), a systemically important non-banking financial company (NBFC), in September this year, the sector has faced several challenges as rates in the short-term debt market have moved upwards.

NBFCs faced pressure to improve their asset-liability management (ALM) in light of the crisis and the possibility that some of these non-banks would default on their outstanding bond or debt redemptions.

"Faced with a stressed liquidity position that has made fund raising from the markets challenging, the NBFC sector has been increasingly turning to banks for their fund requirements. The increased demand for funds by NBFCs has been impacting liquidity in the banking system," says Madan Sabnavis, Chief Economist at CARE Ratings.

Some players began to change their lending practice and improve their borrowing mix, that is relying less on commercial papers (CPs) and more on bank credit lines, external commercial borrowings and securitisation to raise funds.

According to investment management firm Bernstein, while CP issuances are still low, the market is receptive to clearing the CPs of NBFCs.

In August, the average fortnightly CP issuance rate grew to a high of Rs 1.5 trillion, thereafter it declined to Rs 1.1 trillion in September and Rs 900 billion crore by October.

CP issuances jumped back to Rs 1.1 trillion by the first week of November, according Bernstein.  

By the end of October, banks raised Rs 69.4 billion in CPs while housing-finance companies (HFCs) raised Rs 38.98 billion from CPs but remained lower than the previous month, at Rs 2.23 trillion, RBI data shows.

Rupa Rege Nitsure, Group Chief Economist at L&T Financial Holdings told Business Standard, “The short-term CP market has bounced back in October and November, but the rates on long-term CPs, bonds or debentures are still very elevated and demand is low. The situation is in a wait-and-watch situation but because in October there was a smooth selling and redemptions, and no hiccups, confidence has returned to a great extent.”

But despite, the RBI announcing that it would conduct another Rs 400 billion worth of open-market-operations (OMO) purchases in the month of December( the same amount in November), the liquidity situation is still dire.

Average net liquidity deficit widened by Rs 210 billion to Rs 1.11 trillion for the week ended November 23.

Despite the fact that the central bank has been trying to infuse liquidity into the system, the banking sector is still facing its seventh consecutive week where there is a liquidity deficit, says CARE Ratings.