During the lockdown, enough deposits, poor credit demand, and therefore the ability to cherry-pick borrowers have flooded Indian lenders with liquidity, encouraging them to strengthen holdings of government bonds.
A combination of surplus liquidity, risk aversion, and also the attractiveness of government securities has resulted in banks investing more in SLR bonds, in line with experts. Statutory liquidity ratio (SLR), has grown by 259 basis points (bps) between 27 March and 5 June to 27.97 percent, as per data showed from the reserve bank of India. A bank’s SLR is expressed as its investments in central, state government, and other approved securities as a percentage of its net demand and time liabilities (NDTL). A minimum Statutory liquidity ratio holding 18 percent is mandated by the Reserve Bank of India.
Non-food credit has declined on a year-to-date basis between 27 March and 5 June by Rs 1.51 trillion to Rs 101.69 trillion as per data from the Reserve Bank of India. However, year-on-year, non-food credit has grown 6.2 percent, the information showed.
Bankers expect to determine a pick up in credit int the latter a part of the year. “As far as the retail side is worried, the bank is trying its best. Already, from the half of May, retail demand is slowly coming, home loans and personal loans are seeing an uptick,” said Arijit Basu, managing director, state bank of India. He added “There is no risk aversion for good quality credit. On one hand, banks are blamed for taking over poor quality credit and on the other, they are now being told to go forward and lend regardless of what the standard is that cannot happen,”.
Lenders are lowering their deposit rates amid surplus liquidity. for example, SBI had lowered its fixed deposit rates by 40 bps on 27 May. It was the bank’s second deposit rate cut in May, after the primary one on 12 May. Retail depositors now earn an interest of 5.1 percent on their 1-2 year term deposits of below Rs 2 crore, down from 5.5 percent earlier.
