The bank credit fell from Rs 2,70,852 crore on July 19, 1996 to Rs 2,69,659 crore on August 2 while investments jumped to Rs 1,79,531 crore from Rs 1,77,005 crore during the same period.
Deposits in the banking system increased to Rs 4,68,010 crore as of August 2, from Rs 4,64,049 crore on July 19. The fall in bank credit and rise in deposits have resulted in the incremental credit-deposit ratio turning negative.
The investment-deposit ratio moved up to 38.36 from 38.14 while the credit -deposit ratio fell to 57.62 from 58.37 during the same period.
Foreign currency assets fell to $17.91 billion on August 9, 1996 from $17.93 billion on August 2. However, both gold and SDR levels stayed put at $4.41 billion and $91 million respectively. The total reserves stood at $22.41 billion down from $22.43 billion. Reserve Money has expanded during the week ended July 26, 1996 by Rs 330 crore to Rs 1,87,966 crore.
The incremental ad hocs in the current financial year has dropped to Rs 5,990 crore as of August 17, 1996, which is well below the within the year ceiling of Rs 9,000 crore. The net issue of ad hoc treasury bills came down below the ceiling after a period of a little over two months when the net issue of ad hocs was well above the stipulated limit. It peaked to a high of well over Rs 22,000 crore a few weeks back.
According to a RBI press note: "On August 14, 1996 the net issue of ad hocs over the March 31, 1996 level was Rs 7,995 crore, which was below the within the year ceiling. The net issue further came down further to Rs 6,855 crore on August 16 and Rs 5,990 crore on August 17, 1996.
The fall in ad hocs is attributed to three factors. Firstly, the Reserve Bank of India transferred it profits for for the year 1995-96 to the government in August. The funds were utilised to wind down the ad hocs position. Second, the government has got substantial funds by way of advance taxes. In fact, the Reserve Bank asked assessees to pay tax well in advance of the last date i.e. September 15 to avoid a last minute rush. Finally, there have been quite a few issues by the government and the funds have been used to wind down the ad hocs position. The resort to market borrowings to decrease ad hocs will prove very costly for the government. This is so as the government has to pay an interest rate of just 4.6 per cent on ad hoc treasury bills and a market rate of anything between 10 per cent to 13.85 per cent on market borrowings.
The ad hocs might fall a bit more once the full advance tax payment comes in and then rise again. Last year, after the advance tax window closed on September 15, 1995, ad hocs fell to Rs 6,690 crore on September 22, 1995. Bankers feel that ad hocs will rise again after September once the tight money season picks up.