Banks selling credit bonds to intersect credit demands

Increasing demand for credit has resulted Indian banks to submerge into their bond investments, potentially squeezing liquidity remoter and gave rise to renting costs to strengthen, as incremental loan disbursements surpass the rate at which savers are piling deposits with big-street lenders. The financial institutions successive credit to deposit ratio, or the proportion of latest deposits that banks utilize for new lending, has reached above the 100% mark. That means the banks are liquidating their investment portfolio to connect credit demand, placing more pressure on system liquidity.

In order to be certain, lenders are required by statutes to put aside a portion of these reserve to secure the financial system is fairly de-risked. To sustain that approach at aggregate levels and to encounter the legal necessity, banks are liquidating bond investments in the non-attendance of adequate deposit creation. Generally the financial institutions credit accelerated at one of the fastest rates since the pandemic began at 14%, and the incremental credit deposit ratio is at 113% as of July 15 of this year and has levitated around the 100% mark since the start of May this year, the latest Reserve Bank of India (RBI) data appear as that interest rates are about to increase further.


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