With decent deposit growth rates (24%) and access to cheap funds (100-150 points over 6-month LIBOR) from international markets, banks are eager to find borrowers. Not succesful at that, banks are parking all that money in different non-direct-lending channels like SLR bonds, revers repo.
Natural question here is why wouldn’t banks find borrowers with corporate investments at peak rates?. ECB route has become a golden-transit for private-sector using which they (just like banks) can access cheap capital from intenration markets. Highly-rated corporate-debt can be placed with little effort overseas with decent LIBOR+150 rates. There’s no point for these corporates to chase domestic banks for funds given the cheaper alternative (ECB).
Another blow to banks is an effort by RBI to squeeze money-supply (20% growth in money supply which is above the nominal GDP-growth of 13% that naturally explains the inflationary pressures with too much money chasing fewer goods) by gradually increasing CRR (7%). This excessive money supply is resulting from record FII inflows ($8.4 billion) and forex reserves standing at $225 billion.
What would be your strategy, if you were a corporate treasurer at one of these banks?
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