Mumbai, June 23: Investments by commercial banks have gone up leaps and bounds in the first four fortnights in the current fiscal, thanks to tardy credit offtake that continues to plague the banking industry.

While bank investments in government securities went up by 3.6 per cent as on June 6 over the fortnight to touch Rs 208,719 crore, bank credit continued to fall. In the fortnight it fell by Rs 113 crore. The Reserve Bank of India did not release the food and non-food credit break-up for the fortnight ended on June 6 as the State Bank of India was on strike and figures could not be collected.

Banking analysts said that the increasing investments by banks is a good sign as it is leading to lower monetisation of governmentdebt.

During the financial year, investments in government securities went up by 9.2 per cent to touch Rs 17,628 crore. "With banks not lending in a big way, they are parking their funds in government securities and private companies' debt and commercial papers.

After the Reserve Bank of India raised the 5 per cent ceiling on corporate debentures, commercial banks' investments in these papers have gone up," economist at WI Carr, Bidisha Ganguly, said. Analysts said that the increase in investments by banks will lead to further drop in yields of government securities.

"Yields are bound to come down further as there is so much of liquidity with the banks," a banking analyst with a leading foreign institutional investor said.

According to Ganguly, with lower monetisation, money supply will be very much under control and as a result inflation will also not be affected.

Doubts have been repeatedly raised stating that the increased intervention by the central bank in the forex market and higher capital inflows will lead to a rise in inflation.

"Despite the rising forex reserves money supply will not be affected much. The capital inflows and forex mop ups by the central bank will not have much of an impact as the banks are investing all the rupees that is being released into the system in government securities instead of lending to corporates," Ganguly said.

The Reserve Bank of India governor C Rangarajan has said that the central bank aims at maintaining money supply at 15.5 per cent to 16.5 per cent for the current financial year. The rise in bank investments is matched during the fortnight is matched by the continued rise in the aggregate bank deposits. Deposits went up by Rs 4032 crore to Rs 5,17,707 crore during the fortnight. Investment deposit ratio shot up to 40.32 from 39.24 in the previous fortnight.

The government's resort to ways and means advances (WMA) continued to remain zero as the government was faced with surpluses.

The net Reserve Bank of India credit to the Centre fell marginally to Rs 1,20,074 crore from Rs 1,20,702 crore during the week ended June 6.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.