Business Daily from THE HINDU group of publications
Monday, Sep 07, 2009
ePaper | Mobile/PDA Version | Audio | Blogs
Business Daily from THE HINDU group of publications Monday, Sep 07, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Money & Banking
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Investments Banks’ incremental investments zoom on sluggish credit off-take With deposits growing, banks had no choice but to invest predominantly in Government securities and liquid schemes of mutual funds. Our Bureau Mumbai, Sept. 6 Sluggish credit offtake is forcing banks to bulk up their investment portfolio. In the financial year so far, incremental investments made by banks (aggregating Rs 1.79 lakh crore) is over seven times the incremental investments made (Rs 24,781 crore) by them in the corresponding period last year. The dismal credit disbursement scenario is underscored by the fact that in the financial year so far (April 1 to August 14, ), banks collectively lent Rs 26,421 crore. In the corresponding period last year, banks had disbursed nearly three times (Rs 76,902 crore) more. With an incremental deposit growth during the period of Rs 2.25 lakh crore, which is over 1.5 times the deposit growth of Rs 1.35 lakh crore in the corresponding year ago period, banks had no choice but to invest predominantly in Government securities and liquid schemes of mutual funds as credit pick up had slowed considerably due to the tepid economic outlook. In a scenario wherein deposits grow at a fair clip but credit offtake is subdued, banks seek to minimise their cost of carry (of funds) by aggressively resorting to investments. “The flow of credit proposals has been reasonable in the second quarter so far compared with the first. Debt drawals are linked to promoters’ equity contribution. With companies going in for Qualified Institutional Placements and Initial Public Offers, loan drawals from companies in the infrastructure and allied sectors is improving,” said Mr B.K. Batra, Executive Director, IDBI Bank. The average cost of funds for banks, according to Mr B.K. Pipariya, General Manager, Bank of Maharashtra, currently ranges between 5.70 and 6.50 per cent and the average return on investment they are getting by deploying surplus funds in government securities, liquid schemes of mutual funds, commercial papers, certificate of deposit, etc is 7.0-7.5 per cent. Despite interest rates cuts in the last few months, deposits continue to accrue to banks as retail investors are chary about investing in equity markets. “Retail investors are not being adventurous in the current uncertain market scenario. Small investors would rather park their surplus with banks and earn 6-7 per cent interest on a one-year fixed deposit than burn their fingers in the equity markets,” a senior banker said. More Stories on : Investments | Credit Market
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