Indian banks experienced significant credit growth during the fortnight that ended on September 22, 2023, despite systemic liquidity tightness in the financial markets. In this period, advances increased by ₹1,01,244 crore, while deposits decreased by ₹1,08,893 crore due to maturing certificates and bulk deposits. This occurred even as retail loans saw an uptick.
Madan Sabnavis of Bank of Baroda pointed out the marginal standing facility rate standing at 6.75%, indicative of a liquidity crunch in the system. He suggested that in response to these conditions, the Reserve Bank of India (RBI) might reveal a calendar for Open Market Operations (OMO) auctions to help alleviate liquidity concerns.
Bank of Baroda, a prominent player in the banking industry, has been facing some challenges, according to InvestingPro data. The bank has a market cap of Rs 1.11 trillion. Despite these figures, the bank has been trading at a low earnings multiple, and its valuation implies a poor free cash flow yield. However, it's worth noting that the bank has been profitable over the last twelve months and analysts predict it will continue to be profitable this year.
Meanwhile, V Rama Chandra Reddy from Karur Vysya Bank noted that inflation has exceeded the RBI's limit. This could potentially signal a withdrawal of the central bank's accommodation stance in the near future.
Both Sabnavis and Reddy's observations underscore the challenges faced by Indian banks amidst tightening liquidity and rising inflation. The possibility of the RBI resorting to OMO auctions points to their efforts to maintain stability in the financial markets during this period. As these dynamics continue to unfold, stakeholders will be closely watching the RBI's moves in managing these economic pressures.
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