Borrowers are coming in droves, and banks are getting desperate

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₹3.8 trillion on Thursday, and bankers hope the situation will improve when government spending picks up, and money finds its way into the banking system. Liquidity deficit stood at ₹2.6 trillion as on 22 February, slightly lower than ₹2.8 trillion on 21 February, as per data from Bloomberg, but has nonetheless stayed in deficit since 8 December. “Because credit offtake is quite strong, banks are managing the shortfall in deposits with short-term borrowings," said Arun Bansal, executive director, IDBI Bank.

"Banks are dipping into their SLR securities—government securities and other sovereign papers—and given that everyone is sitting on surplus SLR, it can be used in such situations to borrow funds through tri-party repos at 6.3-6.8% and at 6.75% from the marginal standing facility (MSF) window," Bansal added. Banks tap the central bank's MSF window when money turns scarce in the interbank or call market. The weighted average call rate stood at 6.55% as on 22 February, cooling off from the 6.7% levels seen earlier this month.

Banks have raised deposit rates to attract funds, but net inflows have not kept pace with the kind of credit demand banks are witnessing. While deposit growth stood at 13.6% year-on-year (y-o-y) as of 9 February, growth in non-food credit was at 20.4% y-o-y in the same period. Bansal said it is cheaper to borrow from MSF than issue CDs.

“Bulk deposit and CD rates have gone quite high. In the shortest tenure of bulk deposits — 46 days to 91 days — the rates are at 7.20-7.35%; three-month CDs ending in March are trading at 7.80-7.90%," said Bansal. According to a banker at a large state-owned bank, lenders are trying to raise some short-term funds and hoping that when inflation is under control, RBI