State Bank of India (SBI) is flush with money, mostly invested in government securities, but it continues to borrow cash from the central bank, a senior official said Tuesday.
The surplus with the country’s largest bank stands at Rs 30,000 crore, the official, who is among those who monitor the cash position of the bank, said on condition of anonymity. This was invested in gilts, resulting in SBI’s holdings of government paper exceeding the mandatory requirement, he added.
At the end of March 2010, the surplus was at Rs 84,000 crore, according to a presentation to the press on 2009-10 earnings by the bank?s chairman, OP Bhatt.
The bank?s statutory liquidity ratio?or the share of deposits invested in gilts?was 28%, a full three percentage points higher than decreed by the central bank, the official said.
The surplus three months ago was much higher because of low demand for credit from its customers. Although the surplus has declined, its existence is proof of credit growth remaining sluggish.
In the current fiscal, SBI shifted gears and deliberately cut back on holding surplus in cash and invested in gilts, he said.
Last month, when tightness was felt it could have liquidated the investment that exceeded the reserve requirement. Instead, the bank preferred to borrow from the Reserve Bank of India (RBI) to meet daily cash demand-supply gap because this investment strategy was better for profits.
The RBI provides daily overnight loans in repurchase agreements or repos at 5.50%. Until last week, such loans from the RBI’s repo window were at 5.25%.
This strategy was followed even after money became more expensive from late May because of large outflows to government’s treasury, he said.
Investment in 10-year paper yields a little over 7.62%. When liquidity tightened?and measures to boost access to liquidity were unveiled on May 26?the yield was 7.54%.
From late May, RBI relaxed some norms to increase the amount banks can access from this facility, and State Bank’s chairman had acknowledged that his bank was tapping the repo facility.
The relaxation was to end July 2, but it will continue until July 16, the RBI has said, noting the pressure on liquidity was not yet over.
The official was of the view overall liquidity in the system was improving or “better than what it was earlier”, but banks will continue to borrow from RBI’s repo window this month.
Tightening was caused by big payments by banks’ customers to government for 3G and broadband licence fees coupled with quarterly corporate tax dues last month.
The higher-than-mandated investment in SLR securities by SBI indicated that credit offtake remained low in April-June.
“Our credit growth in the last quarter has been 14-15% and we are hoping we will achieve 20-22% by the (financial) year end in March,” the official said.
He expects RBI to revise its credit growth target for banks in the current fiscal. “RBI has indicated a credit growth of 20%, and we expect them to revise it downwards. Last (financial) year too, it had done that.”