Money Market Turnover Touches Record ₹5.5 Trillion As Credit Demand Stays Strong

India’s money-market turnover reached an all-time high in May, driven by increased borrowing from banks seeking funds to meet rising credit demand across the economy.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

Data compiled by Bloomberg showed that turnover in the tri-party repurchase (TREPS) market climbed to a record ₹5.5 trillion on May 13. Trading volumes have remained elevated since then. The TREPS segment accounts for nearly 70% of India’s money-market activity and serves as a key source of short-term funding for financial institutions.

The rise in borrowing reflects sustained loan demand despite global uncertainties and higher energy costs linked to the U.S.-Iran conflict.

Credit Growth Outpaces Deposits

Reserve Bank of India data showed bank credit expanded 16.2% in the year ended May 15, marking the fastest pace of growth in two years. Deposit growth, however, continued to lag behind lending expansion.

The spread between credit and deposit growth has widened to about 400 basis points, the widest in nearly two years. Demand for credit has outstripped deposit growth for an eighth straight month, highlighting the pressure on banks to seek new sources of funds.

The imbalance has prompted lenders to rely more heavily on money markets, where short-term borrowing remains relatively cheaper than other funding options.

Borrowing Costs Move Higher

The increased demand for funds has pushed up overnight borrowing rates and short-term bond yields in recent weeks. Kanika Pasricha, Chief Economist at Union Bank of India, said the money market currently offers banks one of the lowest-cost funding avenues at a time when overall funding costs are facing upward pressure.
Banks have been contending with slower deposit mobilisation as a larger share of household savings moves into alternative investment products, including mutual funds and other market-linked instruments.

State-Owned Banks Lead Funding Demand

State-run lenders have been among the most active participants in the money market as loan demand remains strong across multiple sectors. Speaking on Wednesday, State Bank of India Chairman C.S. Setty said the bank continues to see healthy demand from industries including power, renewable energy and data centres.
Strong borrowing requirements from such sectors have contributed to the sustained need for short-term liquidity among lenders.

Private Banks Shift Position

An analysis by the Clearing Corporation of India showed an unusual change in market participation during May, with private-sector banks turning into net lenders after traditionally being net borrowers.

According to Tanay Dalal, economist at Axis Bank, the shift may be linked to banks deploying funds generated from the sale of rate-sensitive investments amid concerns that measures to support the rupee could influence interest-rate expectations.

The record turnover highlights the growing role of money markets in supporting banking-system liquidity as lenders balance strong credit growth with persistent challenges in attracting deposits.