Banks invest more in gilts than in credit

Credit growth not up dramatically

For all the buzz in banking circles about the demand for credit picking up at a sizzling pace, the figures tell a story that's just the opposite: the demand for credit hasn't picked up dramatically, and banks have been putting even more of their money in gilts.

On an incremental basis in 2003-2004, bank investment in government securities is far higher than the growth in credit.

Indeed, their investment in gilts accounts for roughly 66 per cent of their incremental assets, against the stipulated 25 per cent.

According to the Reserve Bank of India's weekly statistical data, released on Saturday, the incremental non-food credit of banks in the first nine months of the year (between April and December 12) is Rs 55,125 crore "" about 60 per cent of banks' investment in government securities during this period. Banks put Rs 97,197 crore in government paper during the nine months.

In other words, banks are putting more money in government paper than in advances. This is despite the rise in demand for retail loans like home and consumer loans.

On their outstanding asset portfolio, bank investment in government securities is around 45 per cent against the statutory prescription of 25 per cent.

However, on an incremental basis, bank holding of government paper works out to around 66 per cent of the assets.

"We have not seen this in the past," said a senior banker. Overall, the investment portfolio of the banking industry swelled Rs 1,00,183 crore in 2004.

In contrast, total bank credit grew Rs 41,158 crore. In the corresponding period last year, the investment portfolio grew Rs 90,764 crore but the credit portfolio grew more by Rs 95,361 crore.

Bank investment in government securities in April-December last year was to the tune of Rs 93,440 crore. The non-food credit portfolio grew during this time by Rs 97,111 crore.

"This is possibly for the first time that we are seeing investment in gilts overtaking banks' credit," said a bank chairman.

"I have heard my colleagues in other banks talking about corporates lifting bank loans. But I have not seen the trend," he added.

A different story

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The incremental non-food credit of banks between April and December 12 this year is Rs 55,125 crore. Banks put Rs 97,197 crore in government paper during the nine months

The investment portfolio of the banking industry swelled Rs 1,00,183 crore in 2004. In contrast, total bank credit grew Rs 41,158 crore

In the corresponding period last year, the investment portfolio grew Rs 90,764 crore but the credit portfolio grew more by Rs 95,361 crore