what banks do with the surplus amount of their deposits
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Banks are parking surplus funds in mutual funds and government bonds in the absence of attractive lending opportunities.
Investment by them in mutual funds surged to Rs60,883 crore on November 15 from Rs27,090 at the end of September, despite the Reserve Bank of India wanting the institutions to focus on the core business of lending. As for government bonds, the banks have exceeded the minimum statutory liquidity ratio of 23% of deposits by close to 7 percentage points. The outstanding investment-deposit ratio was 29.88% on November 15.
“Banks are likely to have invested in liquid funds. This is a short-term parking slot before lenders find suitable assets to put funds,” said NS Venkatesh, head of treasury at IDBI Bank. “Banks have raised funds from RBI's special swap window on FNCR (B), part of which they are using.”
Liquid funds allow banks to withdraw funds overnight, besides offering a 9% return, among the highest that can be earned in this space, he said.
RBI had introduced a higher risk weight on such investments to discourage banks from directing funds to such areas. They appear to be trying to get around this by pulling out investments toward the end of a quarter and then going back to the market once the new threemonth period begins, analysts said.
Investment by them in mutual funds surged to Rs60,883 crore on November 15 from Rs27,090 at the end of September, despite the Reserve Bank of India wanting the institutions to focus on the core business of lending. As for government bonds, the banks have exceeded the minimum statutory liquidity ratio of 23% of deposits by close to 7 percentage points. The outstanding investment-deposit ratio was 29.88% on November 15.
“Banks are likely to have invested in liquid funds. This is a short-term parking slot before lenders find suitable assets to put funds,” said NS Venkatesh, head of treasury at IDBI Bank. “Banks have raised funds from RBI's special swap window on FNCR (B), part of which they are using.”
Liquid funds allow banks to withdraw funds overnight, besides offering a 9% return, among the highest that can be earned in this space, he said.
RBI had introduced a higher risk weight on such investments to discourage banks from directing funds to such areas. They appear to be trying to get around this by pulling out investments toward the end of a quarter and then going back to the market once the new threemonth period begins, analysts said.
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