Sharp Rise In Investments In Govt Paper

Clearly, the huge pile-up of resources with banks, largely in the form of time deposits, has been diverted towards investments in government paper rather than being doled out as commercial credit during a period when there was an overall liquidity crunch in the system.

According to the latest data made available by Reserve Bank of India, bank deposits at the end of September 13 (fortnight ended) showed an increase of Rs 20,034 crore as compared to a growth of Rs 1,457 crore in the April-September period of 1995-96.

Bulk of this variation in the deposit base of banks has accrued in the latest quarter. The increase in deposits was Rs 5,577 crore at the end of June and was brought about due to the big spurt in time deposits. The increase of Rs 13,290 crore was partially offset by the decline of Rs 7,714 crore in demand deposits.

 

In fact, in the fortnight to Sept-ember 13, the increase in time deposits since April worked out to Rs 24,297 crore. This was partially offset by the decline in demand deposits by Rs 4,263 crore in the same period.

Over the same period, investments in government securities by commercial banks more than doubled at Rs 13,712 crore as compared to Rs 6,606 crore in the same period in 1995-96. The investments aggregated Rs 3,595 crore at the end of June this year compared with Rs 841 crore in the same period in 1995-96.

Signficantly, bank investments in other approved securities like debentures and PSU bonds declined by Rs 1,014 crore in 1996-97 as compared to an increase of Rs 676 crore in the same period last year. In fact, the decline has actually accelerated from Rs 474 crore in April-June of the current year as compared to a rise of Rs 1,722 crore in the same period in 1995-96.

However, credit offtake in this period declined by Rs 6,739 crore in the April-September period as compared to a rise of Rs 3,149 crore in the same period in 1995-96.

The decline was witnessed both under food and non-food credit doled out by banks. The decline was Rs 996 crore (as compared to an increase of Rs 870 crore) for food credit and Rs 5,743 crore for non-food credit (an increase of Rs 2,279 crore).

Surprisingly, throughout this period of massive build-up in the deposit base of banks, the prime lending rate has remained sticky at the previous levels