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State-owned lenders State Bank of India and Canara Bank are likely to raise up to ₹19,000 crore through debt issuances in coming weeks as banks step up fund mobilisation through the bond market at a time when credit demand outstrips deposit growth.
“SBI will be soon approaching its board for a proposal to raise up to ₹15,000 crore through the issuance of tier-2 bonds while Canara Bank will opt for additional tier-1 (AT-1) bonds to raise money worth up to ₹4,000 crore,” a source aware of the developments said.
So far in the current financial year, SBI, the country’s largest mass lender, has raised Rs 20,000 crore through the issuance of two tranches of infrastructure bonds. Last month, Canara Bank raised ₹10,000 crore, also through the issuance of infrastructure bonds, which give banks exemptions from maintenance of reserve requirements on the funds raised.
In the current financial year, banks have stepped up their borrowings from money markets and certain types of bonds as tighter liquidity conditions and the persistently slower pace of deposit growth than credit growth have exerted pressure on lenders to mobilise funds.
Bank credit growth has steadily outstripped deposit growth since April 2022 as demand for loans increased as the economy progressively re-opened after the restrictions of the Covid-19 pandemic. As on July 12, 2024, bank credit growth was at 15.5% year-on-year while deposit growth was at 11.7% over the same period, latest RBI data showed. The data exclude the impact of the merger between HDFC and HDFC Bank.
Over the past few months, the RBI has repeatedly flagged the gap between credit growth and deposit growth, telling banks to re-strategise their business plans amid a structural transition playing out in the banking sector.
“Households and consumers who traditionally leaned on banks for parking or investing their savings, are increasingly turning to capital markets and other financial intermediaries,” RBI governor Shaktikanta Das said last month.
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