Breaking the Bank: India’s Surge to 2 Trillion Rupee Borrowing Record

Indian banks have recently witnessed a significant surge in borrowing, crossing the 2 trillion Rupees mark and reaching an all-time high. The Marginal Standing Facility (MSF) borrowing by banks has soared to Rupees 2.34 trillion on a particular Wednesday and Rupees 2.05 trillion on the following Thursday. This dramatic increase indicates a further drying up of liquidity in the banking system. Factors contributing to this liquidity crunch include heavy investor participation in initial public offerings (IPOs), multiple bond issuances, and advance tax flows, leaving the banking sector in a state of shortfall.

Additionally, Indian banks have raised $2 billion through infrastructure bonds over two weeks, driven by the anticipation of a revival in private capital expenditure and increased government spending. Notable contributions include the State Bank of India raising 100 billion Indian Rupees ($1.22 billion), ICICI Bank concluding a 50 billion Rupees seven-year bond issue, and Kotak Mahindra Bank garnering 15 billion Rupees. Earlier, ICICI Bank and Bank of Baroda raised a combined total of 31 billion Rupees in infrastructure bonds. The purpose of these bonds is to finance long-term development projects.

The Indian economy is currently growing at 6.3% and is expected to grow by 6.8% this financial year. However, both private consumption and investment are slowing due to rising inflation. Banks are also taking advantage of a recent dip in Indian government bond yield. For instance, ICICI Bank and Kotak Mahindra Bank paid an annual coupon of 7.63% each for their seven-year bonds, and SBI paid 7.51% for its 10-year infrastructure bonds.



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