Banks trim gilts to power loan book as deposits lag

Banks have been liquidating their holdings in government securities in order to finance credit growth at a time deposits remain hard to come by, Reserve Bank of India (RBI) data showed.

- Shayan Ghosh

Banks are mandated to hold at least 18% of their net demand and time liabilities (NDTL)-the net total a bank owes its customers and other banks-in government papers and other approved securities. They typically keep an additional 10 percentage points more in such securities.

The statutory liquidity ratio (SLR)-the percentage of aggregate deposits invested in liquid assets-of the banking sector was 26.5% on 17 October, down from 27.3% on 18 October 2024, RBI data analysed by Mint showed.

The SLR holdings were 26.7% of the NDTL on 19 September. Given that the NDTL was at ₹259.8 trillion on 17 September, a 10-basis point decline allows banks access to almost ₹26,000 crore in funds. "Some banks have offloaded investments to fund credit growth when deposit growth has not kept pace," said Madan Sabnavis, chief economist at Bank of Baroda.