Rising ICDR to take up g-sec yields
Banks are lending out Rs 75 for every Rs 100 collected as deposits and of the Rs 25 left, Rs 4 goes as CRR and Rs 18 as SLR leaving just Rs 3 for liquidity purposes. A year ago, banks were lending just around Rs 30 as credit leaving Rs 70 for CRR, SLR and liquidity purposes. The excess liquidity went into buying government bonds as RBI kept yields stable for absorbing government borrowing.
Given higher outlook for yields and record borrowing announced for fiscal 2022-23, drop in banks ability to invest in g-secs will hurt government borrowing as banks are the largest investors in g-secs at 38% of total outstanding.
The table below gives the details of banks credit and deposit growth and investments in g-secs and SDLs.
Date | Incremental Credit to Deposit ratio (%) | Bank's holding in G-secs (%) | Bank's holding in SDLs (%) |
28-Jan-22 | 71.43 |
|
|
31-Dec-21 | 64.76 |
|
|
03-Dec-21 | 56.35 |
|
|
05-Nov-21 | 45.23 |
|
|
24-Sep-21 | 51.42 | 37.82 | 35.94 |
02-Jul-21 | 45.62 | 35.99 | 33.75 |
26-Mar-21 | 37.57 | 37.77 | 33.69 |
01-Jan-21 | 44.09 | 37.81 | 34.19 |
25-Sep-20 | 37.06 | 38.55 | 34.60 |
Government bonds, SDL and OIS yield movements
Last week, 6.54% 2032 paper yield came down by 4 bps to 6.66% while 6.10% 2031 yield remained steady at 6.70%. On the other hand, 5-year benchmark bond, 5.63% 2026 yield rose by 4 bps to 5.81%. 6.64% 2035 yield fell by 7 bps to 6.99%. Long-term paper, 7.16% 2050 yield fell by 11 bps to 7.08%.
The spread of 10-year bond over 5-year bond fell to 89 bps from 94 bps in previous week. The 15-year benchmark over 10-year benchmark spread declined to 26 bps from 32 bps while 30-year benchmark over 10-year benchmark spread decreased to 38 bps from 45 bps on weekly basis.
Average 10-year SDL auction cut-off declined to 7.09% from 7.32% in previous week while spread declined to 39 bps from 49 bps.
On weekly basis, 1-year OIS yield came down by 9 bps 4.26% while 5-year OIS yield decreased by 3 bps to 5.70%.
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