Banks selling bond holdings to meet credit demand; loan rates may rise

By Gayatri Nayak, ET Bureau

Banks’ incremental credit to deposit ratio, or the proportion of new deposits that banks use for fresh lending, has gone past the 100% mark. That indicates that banks are liquidating their investment portfolio to meet credit demand, putting further pressure on system liquidity.

Rising demand for credit has led Indian banks to dip into their bond investments, potentially squeezing liquidity further and causing borrowing costs to harden, as incremental loan disbursements exceed the pace at which savers are building deposits with high-street lenders.

Banks’ incremental credit to deposit ratio, or the proportion of new deposits that banks use for fresh lending, has gone past the 100% mark. That indicates that banks are liquidating their investment portfolio to meet credit demand.

Source: Economic Times

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