Foreign portfolio investor (FPI) selling in the Indian equity and debt market seems to have had a ripple effect on bank deposits, which came down by ₹1,73,581 crore in the reporting fortnight ended November 15, 2024.
FPI (including foreign institutional investors) selling, which brought down the Indian markets during the reporting fortnight, could have triggered deposit outflows, exerting liquidity squeeze, opined Madan Sabnavis, Chief Economist, Bank of Baroda.
Moreover, mutual funds could have faced redemption pressure due to decline in the market, causing them to dip into their deposits with banks.
During the fortnight ended November 15, 2024, the bellwether BSE Sensex closed down about 2,144 points.
The effect of liquidity squeeze due to deposit outflows can be gauged from the fact that the Reserve Bank of India conducted four variable rate repo auctions beginning November 22, 2024, to infuse liquidity into the banking system.
In the preceding fortnight ended November 1, 2024, the outstanding deposits of scheduled banks had jumped by ₹2,36,542 crore, per RBI’s fortnightly scheduled banks’ statement of position in India.
Banking expert V Viswanathan observed that there are huge credits of salary and pension at the end of the month. Government also releases funds on the last day. These funds get drawn in the first fortnight.
Advances and Investments down
In the reporting fortnight, outstanding advances of all scheduled banks came down by ₹73,348 crore.
“As far as advances are concerned most of the loans carry interest at monthly rests. So, the advances figure goes up at the end of the month. Interest is paid back in the first fortnight,” Viswanathan said.
In the preceding fortnight, outstanding advances of all scheduled banks shot up by ₹2,08,748 crore.
Banks’ outstanding investment in Central and State government securities came down by ₹67,158 crore in tandem with the decline in deposits.
