RBI on High Alert as Bank Debt Crosses ₹9 Lakh Crore

Indian banks are increasingly turning to market instruments to bolster their balance sheets, with borrowings surging past ₹9 lakh crore. This unprecedented rise has caught the attention of regulators, primarily driven by the widening gap between credit growth and deposit mobilisation.

Data from the Reserve Bank of India (RBI) reveals that banks’ borrowings climbed 20% from April 5 to ₹9.32 lakh crore as of July 26. This figure primarily encapsulates short-term funding avenues like interbank repo operations and tri-party repos. While the data also includes longer-term instruments such as additional tier-1 and infrastructure bonds, it excludes certificates of deposit. Notably, infrastructure bond issuances have gained momentum recently.

The average fortnightly borrowing in the current financial year has escalated by 45% compared to the previous year, underscoring the growing reliance on market funding. This trend is a testament to the intensifying liquidity pressures faced by banks as credit demand outpaces deposit growth.

As the credit-deposit ratio continues to widen, the banking system’s dependence on market-based funding is likely to persist, necessitating regulators’ careful monitoring to mitigate potential risks.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.