Public sector banks will pass bonds to focus on lending: Experts

 

Public sector banks sold bonds worth over ₹30,400 crore ($3.69 billion), on a net basis, in the 25 trading sessions till December 6, Clearing Corp of India data showed

MUMBAI: Indian public sector banks, which sold government bonds in the last few sessions, may not become buyers immediately as their focus remains on cutting investments under the statutory liquidity ratio (SLR) to fund credit growth, analysts said.

State-run banks sold bonds worth over ₹30,400 crore ($3.69 billion) on a net basis in the 25 trading sessions till December 6, data from the Clearing Corp of India showed.

Bank of Baroda (BoB) general manager-treasury Sushant Mohanty said, "Banks are facing liquidity crunch while SLR levels are more than adequate. In such a scenario there will be moderate buying by public sector banks."

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 of state-run banks confirmed that part of the sale was to free up funds invested in SLR securities, while banks were also looking to book profits and divert funds to lending as credit growth .

RBI data showed that bank credit grew by 17.17% year-on-year for the fortnight ended November 18.

Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, said, "Besides booking profits, state-run banks are liquidating to meet credit needs, as deposit rates are rising and the cost of funds will go higher."


In November, state-run lender Punjab National Bank said it may draw additional SLR reserves if necessary to boost credit flows, while in September, Reserve Bank of India governor Shaktikanta Das said the bank could draw additional By reducing the cash reserve ratio, you can get more cash. and SLR.

"The fall in yields has given banks a much-needed opportunity to diversify funds from bond investments into the real business of lending. This has been done across the spectrum," said a trader at a state-run bank.

India's benchmark 7.26% 2032 bond yield eased to 7.18% last week, having fallen more than 35 basis points in the previous month on hopes of a slowdown in the pace of rate hikes.

However, traders say that the yield is unlikely to fall further from the current level. The benchmark yield was last seen at 7.26%.

Mohanty of Bank of Baroda said, “I do not see any major movement in the yield.