Lazy banking: Banks' bond investment surpasses loans

Standard Chartered's Sahay said the gap between investments and advances will narrow only gradually

Record liquidity infusion by the central bank in the banking system during the financial year 2020-21 amid sluggish economic activity resulted in banks investing more in safe government papers than in extending loans, data from Reserve Bank of India (RBI) showed. This trend has not been seen in nearly two decades, barring 2016 — the year of demonetisation.

According to RBI data, banks invested Rs 7.2 trillion in government bonds compared to Rs 5.8 trillion extended as loans in 2020-21.

The last financial year witnessed huge liquidity infusion by the RBI following the contraction in GDP owing to the Covid-19 related lockdown.