Indian state-run banks to pass up bonds to focus on lending

Indian state-run banks that sold government bonds in the last few sessions may not immediately turn buyers, as their focus shifts to cutting down investment under the Statutory Liquidity Ratio (SLR) to fund credit growth, analysts said.

State-run banks sold bonds worth more than 304 billion rupees ($3.69 billion), on a net basis, in the 25 trading sessions through Dec. 6, data from the Clearing Corp of India showed.

“Banks are facing a liquidity crunch, while SLR levels are more than adequate. In such a scenario, there will be moderate buying by state-run banks,” said Sushanta Mohanty, general manager-treasury at Bank of Baroda (BoB).

SLR is the minimum percentage of deposits that commercial banks are required to invest in liquid assets, such as government bonds and state debt.

Banks are mandated to invest 18% of their total deposits in SLR securities, but, according to traders, they have invested around 26%-28% in such notes.

Senior dealers from state-run banks confirmed that part of the selling was to free up funds invested in SLR securities, while banks also looked to book profits and divert the funds towards lending as credit growth picks up.

Banks’ credit grew by 17.17% on-year for the fortnight ended Nov. 18, data from RBI shows.