Mumbai: Public-sector banks (PSB) have gained an estimated ₹2.1 lakh crore of additional lending headroom following the relaxation of liquidity coverage requirements, allowing them to sustain credit growth even as deposit mobilisation remains relatively weak, multiple analysts said.
An estimate by Bernstein suggests that the excess investment buffer could support around 1.7% incremental loan growth on the PSB loan book of ₹127.9 lakh crore. Bernstein's calculation is based on the amount of high-quality liquid assets (HQLA) held by state-owned banks over what would be needed using a 120% LCR benchmark.
Read more: India has fixed its PSU banks. Now comes the more ambitious part
The tweaked liquidity framework allows banks to free up more of their funds, which would otherwise have been tied up in government bonds, for onward lending in higher-margin products.
PSBs held a total HQLA of ₹33.9 lakh crore in the June quarter, against an estimated optimum requirement of ₹32.2 lakh crore at a 120% LCR.
This translates into ₹1.6 lakh crore of excess HQLA and, after adjusting for the share of HQLA in their investment books, about ₹2.1 lakh crore of excess investments, according to Bernstein. "Excess liquidity within the PSBs increased during the quarter, potentially providing additional capacity to support credit growth," said Pranav Gundlapalle, head, India Financials at Bernstein.
Read more: Banks seek CRR cut on green deposits to boost green lending in India
The improvement is visible at some of the largest state-owned lenders. State Bank of India's LCR rose to 126.05% in the June quarter from 124.32% in March, while Union Bank of India's increased to 121% from 114%. Bank of Baroda reported an LCR of 126.94% for the June quarter.
