For the first time in nearly two months, banks' investment in statutory liquidity ratio instruments has fallen below incremental credit flow during a fortnight.
During the fortnight ended February 13, SLR investment, which includes those in government and other approved securities, fell to Rs 6,571 crore (Rs 65.71 billion), as against Rs 25,596 crore (Rs 255.96 billion) in the previous fortnight. In contrast, credit flow during the last fortnight, for which data was released by the Reserve Bank of India on Friday, was estimated at over Rs 10,000 crore (Rs 100 billion).
At the end of the February 13 fortnight, bank investment in SLR instruments was at Rs 11,72,622 crore (Rs 1,1726.22 billion). With higher deposit mobilisation in the period, year-on-year growth in bank deposits grew by 21.4 per cent for the period up to February 13, as against 18.7 per cent at the end of January 30.
Banks either deploy funds mobilised through deposits in financial instruments ranging from government securities, commercial papers, shares, bonds, debentures to instruments issued by mutual funds, or lend it. It is mandatory for banks to invest 24 per cent of the total net demand and time liability in SLR.
The SLR is the ratio of total demand and time liability that a bank has to maintain in form of cash, gold or other approves securities with the RBI.
In the last fortnight, banks invested Rs 13,489 crore (Rs 134.89 billion) in instruments issued by mutual funds taking the total investment in these papers during the last two months to Rs 50,379 crore (Rs 503.79 billion). In the fortnight-ended January 30, Rs 13,787 was parked in instruments issued by mutual funds.
"Decrease in investment is a good sign for the economy. Banks are parking surplus money in reverse repo, which indicates there is liquidity in the system, but they are reluctant to lend. There has been demand from retail sector, commercial vehicles and housing sectors," said a senior bank executive.
Bankers say that the demand for credit has picked up and at the same time cost of funds have come down. Banks are lending to some segments like retail, housing and automobile while they are still reluctant to lend to few sectors like- non banking finance companies and real estate.
"There are some signs of revival though a part of the increase in credit flow is on account of lending to oil companies. But at least there is some growth compared with the situation last month when credit shrunk," said a private bank CEO.
Over the last few weeks, government had increased borrowings. With more fund mop-up planned during the coming three weeks, bankers anticipate investment in government securities to rise by around Rs 45,000 crore (Rs 450 billion). This is expected to put some pressure on lending.