Indian private banks' bond buys hit near three-yr high in Dec
Indian private sector banks are set to post their biggest monthly purchase of government bonds in the secondary market in nearly three years in December, largely due to a rise in deposit growth,...

MUMBAI, Dec 26 (Reuters) - Indian private sector banks
are set to post their biggest monthly purchase of government
bonds in the secondary market in nearly three years in December,
largely due to a rise in deposit growth, bankers said on Monday. Private banks have bought bonds worth a net of 216.20
billion rupees ($2.61 billion) this month through Friday, the
most since March 2020, Clearing Corporation of India Ltd data
showed. Bankers said higher yields make for an attractive entry
point, while the pick-up in deposit growth has also been a key
reason for banks to invest more in government securities, a
trend they expect to continue this week and beyond. "The major reason why private banks have increased buying
bonds is because of the deposit growth that they have witnessed
recently," said Arun Bansal, executive director and head of
treasury at IDBI Bank. "Banks may also be looking to buy at high yields, with
expectations of (interest) rate cuts next year, and gain on the
holding period." India's benchmark 7.26% 2032 bond yield was trading at 7.33%
on Monday, up five basis points so far in December, but off the
low of 7.18% hit earlier in the month. Treasury officials said as banks' deposit growth increases,
so does the demand to meet statutory liquidity ratio (SLR)
requirements, which is another reason for the recent rise in
bond purchases. SLR is the minimum percentage of deposits that commercial
banks are required to invest in liquid assets, such as
government bonds and state debt. The ratio is currently 18%. "As bank balance sheets expand, the need to hold something
more will keep banks on the investment book as well. It is not
going to decline," said Rajeev Mohan, president and head -
treasury and global markets at Kotak Mahindra Bank. Banks have been raising funds through bonds, certificates of
deposit and by raising fixed deposit rates over the past few
weeks. Bankers said while state-run banks have been holding excess
SLR, that was not the case with private banks. "When there is an increase in economic activity, the speed
of money going around increases and the need to maintain
frictional liquidity (short-term funds) at banks also
increases," Mohan said. "In this case, banks need to be more liquid ... Hence, I am
not expecting a dip in demand from banks."
($1 = 82.7800 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Swati Bhat and Savio
D'Souza)