MUMBAI, February 14: Bank investments dipped by Rs 3,854 crore for the fortnight ended January 30, 1998. Industry analysts attributed the fall to panic-selling of treasury bills and government securities by banks after the Reserve Bank of India (RBI)'s announcement of a tight money policy on January 16. Bank credit during the fortnight grew by 1.7 per cent (Rs 5,160 crore), while deposits grew by only 0.5 per cent (Rs 3,054 crore). This is for the fourth consecutive fortnight that credit pick-up has far outstripped deposit growth.The RBI announced in mid-January a string of measures to suck out liquidity from the system and jack up domestic interest rates.
The RBI measures included a 0.5 percentage point hike in the cash reserve ratio and a two percentage points hike in the bank rate. The CRR hike sucked Rs 2,400 crore out of the banking system and sent the overnight call rates zooming.
With call rates soaring to dizzy heights, banks turned distress sellers in government securities and treasury bills,while the investors were mainly financial institutions, insurance companies, mutual funds and a few select corporates.
Call rates, however, declined towards the end of the fortnight ended January 30 as most of the banks had covered their positions.
The money market is likely to remain uneasy until the next credit policy, industry watchers said. Barring the fortnight ended January 16 when banks' investments witnessed a nominal growth of Rs 210 crore (0.1 per cent), there has been a continuous fall in investments over the past two months.
The growth in bank credit started outstripping deposit growth during the fortnight ended December 19, 1997 when deposits recorded a slump of Rs 1,489 crore on account of the withdrawal of funds by corporates to fund political parties in the forthcoming elections.
The growth in bank credit has improved the credit-deposit ratio of the banking system which has improved from 51.62 per cent on November 28, 1997, to 53.93 per cent on January 30, 1998.
Meanwhile, the totalforeign exchange reserves have fallen by $96 million to $27.74 billion. Foreign currency assets dipped by $99 million to $24.36 billion, while gold reserves rose by $3 million to $3.32 billion.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
