A Seshan in his letter to Business Standard “LAFing stock” (April 11) has rightly expressed his apprehension about banks window dressing to produce an impressive balance sheet. But even if some banks may do this, the surplus liquidity in the system just before the year-end cannot stem from just large-scale window dressing.
There are several other factors at work. First, the government, both at the central and state level, gives large-scale subsidies at the end of the fiscal year to reach their utilisation targets. This adds to the deposit kitty of banks. Second, banks work overtime to ensure that all the loans sanctioned are disbursed before the year-end. Third, companies with large underutilised limits draw some of their sanctioned limits, thereby increasing the advances portfolio.
Fourth, private companies and some public sector undertakings with large credit limits draw cheap funds from one bank and place the money with another bank that offers a very high rate of interest on deposits. Transactions of this kind typically mature every March and get repeated every year.
S Ravindranath, on email
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