Borrowings of banks touched an eight month high of ₹5.05 lakh crore as of June 16, the highest since October 21, as per data in the Reserve Bank of India’s weekly bulletin.

The surge is expected to have been driven by short-term fund requirement of banks owing to quarterly advance tax payments, market participants said.

The data, which is tracked fortnightly, reflects short-term money market borrowings by banks in the form of interbank repo operations and tri-party repos.

Tighter liquidity conditions had pushed up money market rates in June, leading to an increase in banks’ borrowing costs. Even so, strong demand for credit, especially short-term loans, amid lagging deposit growth has ensured a rise in banks’ need for and dependence on short-term fund raising over the last year for their asset-liability management.

As per latest data, outstanding bank credit was at ₹140.23 lakh crore as of June 16, up 15.4 per cent on year, whereas bank deposits were at ₹185.7 lakh crore, higher by 12.1 per cent YoY.

Outstanding market borrowings of scheduled commercial banks had risen to ₹4.6 lakh crore as of March 2023 from ₹2.7 lakh crore a year ago. Bank borrowings had crossed the ₹ five lakh crore milestone for the first time in September 2022.

Borrowings also include securities such as additional tier-1 bonds and infrastructure bonds, which have seen a pick up in issuances mid-June onwards. Kotak Mahindra Bank raised ₹1,895 crore via AT-1 bonds on June 22. More banks led by State Bank of India are expected to tap the market via AT1 bonds in the coming weeks, which is likely to further push up banks’ borrowings, participants said.

On June 8, the central bank allowed banks to set their own limits for call and notice money borrowings, in addition to the existing facility available for term money borrowings. The move was taken with a view to allow more flexibility and help banks better manage their liquidity requirements, and is expected to support banks’ market borrowing going ahead.

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