By Anil Varma, Bloomberg
Indian banks’ investment in debt rose in the current fiscal year, after a decline in the previous year, because lenders increased purchases as deposits grew.
Debt holdings of banks, biggest buyers of Indian bonds, were 31.8 % of their deposits as of 19 Jan compared with 31.3 % on 31March 2006, when the previous fiscal year ended, the government said in its annual Economic Survey today. Banks invested Rs418.4 billion ($9.5 billion) in debt between 1 April and 19 January, including Rs367.5 billion in government securities.
Banks’ debt holdings totaled Rs7.59 trillion ($172 billion), including government bonds worth Rs7.37 trillion on 19 January. Under the nation’s banking law, lenders must invest at least 25% of their deposits in government debt or other low-risk securities approved by the central bank. This measure of debt that lenders have to hold is called the statutory liquidity ratio or SLR.
“During the current financial year up to 19 January, with a hike in deposit rates and consequent pick-up in deposit growth, SLR investment increased sharply by Rs418.4 billion compared with a decline of Rs248.8 billion during the corresponding period of 2005-2006,” the government said.
Debt investments grew slower than deposits and declined to 31.8 % of deposits on 19 January, compared to 36.8 % a year earlier, the report said.
Reserve Bank of India Deputy Governor Rakesh Mohan on 24 February said banks’ bond holdings under the statutory liquidity ratio have declined “to about 27 %”. Mohan did not give more details. The central bank has the flexibility to reduce the ratio to below the 25 % limit if needed, he said.
Deposits are rising faster as banks offer higher rates following interest rate increases by the central bank. Bank deposits grew 23.2 % in the year ended Feb. 2, beating a 17.5 % increase in the previous year, central bank data showed.