India’s money-market turnover surged to a record level as state-owned banks increased borrowing to meet strong credit demand.
The value of trades in the tri-party repurchase segment, which accounts for about 70 percent of India’s money market, rose to an all-time high of Rs 5.5 trillion ($57.8 billion) on May 13 and has remained elevated since, according to a report by Bloomberg.
India’s economic growth has remained resilient despite the energy crisis triggered by the US-Iran conflict, supporting continued demand for credit.
CS Setty, Chairman of State Bank of India, said on Wednesday that the bank is witnessing strong loan demand from sectors such as power, renewable energy and data centres.
Credit Growth Outpaces Deposit Growth
The surge in funding requirements has pushed up overnight borrowing costs and short-term bond yields in recent weeks, highlighting the challenges banks face in attracting deposits as household savings increasingly move into alternative investment products.
"The money market provides the cheapest source of funds available" at a time when banks are facing rising funding costs, Union Bank of India’s Chief Economist Kanika Pasricha was quoted as saying in the report.
According to the latest RBI data, bank lending expanded by 16.2 percent in the year ended May 15, marking the fastest growth rate in two years.
Credit demand exceeded deposit growth for the eighth consecutive month.
The gap between credit growth and deposit growth widened to around 400 basis points, the highest level in nearly two years.
Private Banks Turn Lenders
Money-market turnover also received support from private sector banks, which unexpectedly shifted from being net borrowers to net lenders during May, according to an analysis by Clearing Corporation of India.
The change appears to have been driven by banks temporarily deploying proceeds from the sale of rate-sensitive investments amid concerns about a potential currency-defence-driven interest rate hike.
