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SCBs dig into excess SLR investments & short term market instruments to manage the
robust credit demand
Our observations: Tracking Investment and Credit
Cash and lending by the banking system, as observed in the Weekly Statistical
Supplement (WSS) for the fortnight-ended February 11, can be stated as below:
1. Deposit growth soars to 17.40% as banks perk up their deposit rates to
keep pace with the robust credit demand. Households kept away from
investing into bank deposits due to the negative returns taking into account
the high inflationary environment. However in H2FY11 banks were compelled
to increase deposit rates in order to mobilize deposits. The overall deposits for
SCBs stood at INR 50.4trn, 17.26% higher than the outstanding deposit of
INR 43trn outstanding a year ago. The incremental deposit for the fortnight
stood at INR 588bn.
2. Bank credit continued to sustain strong growth above the central bank’s
target due to the overall buoyancy in the economy and increasing
infrastructure funding. The overall credit disbursed by SCBs so far in FY11
stood at INR 37.84trn, 24% higher than the outstanding credit of INR
30.51trn outstanding a year ago. Credit to deposit ratio for the SCBs have
inched up to 75.05 compared to 74.95 a fortnight ago, indicative of the faster
growth of bank credit compared to its deposits. At the pace credit is growing,
banks will have to garner additional deposits of at least another INR 3.50trn
so as to maintain its CD ratio at 75. Given that SCBs have managed to
achieve an average growth of 12% per annum in the incremental deposits for
the last four years, this will put upward pressure on the interest rates.
3. SLR investment declined by INR 102bn over the fortnight. Investment
to Deposit ratio has declined continuously from 32.11 in Mar-10 to 29.16 in
the fortnight ending 11th Feb-11, reflective of SCBs funding the robust credit
growth out of its excess SLR investments. However expected borrowing of INR
3.80trn from GoI in FY12, limits the scope of using the excess SLR as a
funding source.
4. M3 growth inches to 16.90% during the fortnight. During the fortnight
the multiplier declined by 6bps to 4.94x mainly on account of an increase in
the reserve money base to INR 12.77trn from INR 12.47trn a fortnight ago.
Broad money growth has been below the target for 9MFY11 on account of
sluggish deposit growth as well as some moderation in money multiplier
resulting from higher growth in currency.
CD issuance remained robust as banks scout for funds in the short term market to
meet up with the pace of the credit growth. During the fortnight outstanding CDs
increased by INR 104bn to INR 3.71trn, despite the high rate of borrowing. With
~INR1trn of CD to be rolled over in Mar-Apr, CD rates are expected to edge even
higher.
Foreign exchange reserves rose modestly by $1.96bn to $300bn during the week
ending Feb-4 on account of the increase in the foreign currency assets
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SCBs dig into excess SLR investments & short term market instruments to manage the
robust credit demand
Our observations: Tracking Investment and Credit
Cash and lending by the banking system, as observed in the Weekly Statistical
Supplement (WSS) for the fortnight-ended February 11, can be stated as below:
1. Deposit growth soars to 17.40% as banks perk up their deposit rates to
keep pace with the robust credit demand. Households kept away from
investing into bank deposits due to the negative returns taking into account
the high inflationary environment. However in H2FY11 banks were compelled
to increase deposit rates in order to mobilize deposits. The overall deposits for
SCBs stood at INR 50.4trn, 17.26% higher than the outstanding deposit of
INR 43trn outstanding a year ago. The incremental deposit for the fortnight
stood at INR 588bn.
2. Bank credit continued to sustain strong growth above the central bank’s
target due to the overall buoyancy in the economy and increasing
infrastructure funding. The overall credit disbursed by SCBs so far in FY11
stood at INR 37.84trn, 24% higher than the outstanding credit of INR
30.51trn outstanding a year ago. Credit to deposit ratio for the SCBs have
inched up to 75.05 compared to 74.95 a fortnight ago, indicative of the faster
growth of bank credit compared to its deposits. At the pace credit is growing,
banks will have to garner additional deposits of at least another INR 3.50trn
so as to maintain its CD ratio at 75. Given that SCBs have managed to
achieve an average growth of 12% per annum in the incremental deposits for
the last four years, this will put upward pressure on the interest rates.
3. SLR investment declined by INR 102bn over the fortnight. Investment
to Deposit ratio has declined continuously from 32.11 in Mar-10 to 29.16 in
the fortnight ending 11th Feb-11, reflective of SCBs funding the robust credit
growth out of its excess SLR investments. However expected borrowing of INR
3.80trn from GoI in FY12, limits the scope of using the excess SLR as a
funding source.
4. M3 growth inches to 16.90% during the fortnight. During the fortnight
the multiplier declined by 6bps to 4.94x mainly on account of an increase in
the reserve money base to INR 12.77trn from INR 12.47trn a fortnight ago.
Broad money growth has been below the target for 9MFY11 on account of
sluggish deposit growth as well as some moderation in money multiplier
resulting from higher growth in currency.
CD issuance remained robust as banks scout for funds in the short term market to
meet up with the pace of the credit growth. During the fortnight outstanding CDs
increased by INR 104bn to INR 3.71trn, despite the high rate of borrowing. With
~INR1trn of CD to be rolled over in Mar-Apr, CD rates are expected to edge even
higher.
Foreign exchange reserves rose modestly by $1.96bn to $300bn during the week
ending Feb-4 on account of the increase in the foreign currency assets
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