Expressing concerns over increased reliance of banks on non-traditional sources of funds, the Reserve Bank has said that high level of borrowed money could adversely impact their liquidity position.
“This increased reliance on borrowed funds raised concerns about the liquidity position of banks arising from growing maturity mismatches, in conjunction with a reduction in the share of liquid assets in total assets,” RBI said in its ‘Financial Stability Report' released on Tuesday.
The growth in deposit mobilisation, at around 18 per cent, did not keep pace with the growth in credit.
The gap was funded by increase in funds accessed from the market (certificate of deposits issuances and borrowings), which increased by 34.5 per cent over its position as at end-March, 2010, it said.
The share of borrowings and CDs in banks' liabilities rose to about 10 per cent in 2011 from about 7.5 per cent in 2006, it said.
In particular, it noted, the period from October 2010 to February 2011, during which the systemic liquidity conditions were strained, witnessed increased CD issuances with interest rates rising to 9-10 per cent.
Increase in borrowings from market was particularly evident in the case of public sector banks and new private sector banks, it said.