Banks' borrowings in India crosses Rs 9 trillion-mark in July: RBI

Bank borrowing figures for July 26 were up 20% compared to the borrowing figures of Rs 7.75 trillion for April 5

Banks in India have seen a sharp rise in their borrowing through market instruments, crossing the Rs 9 trillion-mark, as they grapple with a persistent gap between credit growth and deposit growth.

According to data from the Reserve Bank of India (RBI), as of July 26, scheduled commercial banks, including regional rural banks, small finance banks, and payments banks, reported borrowings of Rs 9.32 trillion. This marks a 19 per cent increase from Rs 7.84 trillion recorded on July 28 of last year. It’s also 20 per cent higher compared to the borrowing figures of Rs 7.75 trillion for April 5 of this year.

Overall, the borrowing of all scheduled banks reached Rs 9.37 trillion, up 18.7 per cent from Rs 7.89 trillion during the same time last year.

The RBI’s fortnightly data highlights that these borrowings primarily represent short-term funding methods such as interbank repo operations and tri-party repos, according to a report by The Economic Times. The news report also noted that bank borrowing figures include issuances of additional Tier-1 bonds and infrastructure bonds, although certificates of deposit (CDs) are not included. Notably, the issuance of infrastructure bonds has accelerated over the past few months, reflecting banks’ efforts to manage liquidity and meet credit demand.

The report further indicated that, adjusted for the effects of the HDFC merger, deposit accretion for FY24 was around Rs 23 trillion, while credit accretion was close to Rs 22 trillion. Given that credit accretion constitutes more than 75-80 per cent of deposit accretion, banks are increasingly turning to market borrowings to fill the gap. Day-to-day liquidity mismatches also continue to push banks towards short-term borrowing.

RBI Governor Shaktikanta Das recently mentioned the potential risks associated with this trend during the central bank’s policy statement on August 8. He pointed out that banks are increasingly resorting to short-term non-retail deposits and other liability instruments to meet rising credit demand, which could expose the banking system to structural liquidity issues. Das also referred to the growing allure of alternative investment avenues for retail customers, further complicating the funding landscape for banks.