The recent measures announced by the RBI to allow banks to access funds for mutual funds and non-banking finance companies (NBFC) have resulted in an increase in the borrowings of scheduled commercial banks from the Reserve Bank of India (RBI). For the fortnight ending on November 7th, the borrowings were noted down at Rs 3,058 as compared to Rs 685 crore for the previous fortnight.

RBI has relaxed the SLR and thereby permitted banks to avail finance up to 1.5% of their deposits in order to support the cash crunch in mutual funds and NBFCs. Moreover the banks have been continuously borrowing funds from the repo window.

As on November 7th, 2008 credit flow on a year-on-year basis from scheduled commercial banks, including regional rural banks, grew by 27.7% to Rs 26,34,893.11 crore. The credit flow up to October 24th has been higher by more than 30%.

Treasury Head of Axis Bank, Parthasarthy Mukherjee said that the growth has been noticed partly due to the rising demand from the oil companies and companies which had parked funds with banks over the last 12 months were now drawing down the credit facilities.

The demand for funds is rising as the funds have reduced even in the international markets. "Since companies cannot borrow from overseas, they are approaching Indian banks to borrow and meet their needs. In addition, the demand for working capital is inventories are increasing and cash flow is reducing, banks are forced to borrow additional funds.

Not only is the borrowing even the deposits of scheduled commercial banks with the RBI raised by 20.7% for the period up to November 7th. The deposits have increased by more than the RBI's projection of 17% during the ongoing fiscal. The demand deposits and time deposits grew by 6.4% and 23.1% respectively.

The time deposits remarked an increased growth because of the higher interest rate offered for funds borrowed by banks for a slightly longer tenure. The banks are raising resources to meet the increasing demand by borrowers and are offering over 10% interest rate on deposits of more than a year.