Investment Portfolio of Scheduled Commercial Banks: March 2011*

This article presents the investment portfolio of scheduled commercial banks (excluding Regional Rural Banks) as at end-March 2011, as per the reporting system of annual Basic Statistical Return (BSR)-5. The investment portfolio covers investments in central and state government securities, securities other than government securities – approved for the purpose of investments under the Indian Trusts Act, 1882, other domestic investments, foreign govt securities and other foreign investments. The article presents details of banks investments in terms of instruments, maturity and coupon rates at the aggregate level as well as at the bank group level. State-wise analysis of scheduled commercial banks (SCBs)’ investments in state government securities and State-level bodies is also furnished. The article also highlights a comparative position of banks’ portfolio in 2011 with that of the previous year.

Highlights

• During 2010-11, the total investments of the scheduled commercial banks (SCBs) increased by 8.9 percent as compared with 20.2 percent in 2009-10.

• Nationalised Banks accounted for the largest share of investments of the SCBs, which however, decreased moderately to 47.9 percent from the last year’s share of 48.2 percent. The share of State Bank group also declined from 22.0 percent to 20.9 percent.

• The maturity profile of the government securities held by the SCBs showed that major part of the investment holdings was in the two maturity buckets viz.,’more than 1 year but less than 6 years’ (35.3 percent) and ‘more than 6 years but less than 11 years (38.2 percent)’. Very short-term holdings (maturing within one year) had a share of 12.2 percent. Holdings of government securities with a long-term maturity period, i.e., from April 2022 onwards, had a share of 14.3 percent, which was higher than that recorded in the previous year (i.e., 12.6 percent for comparable maturity period of 2021 and above).

• Foreign Banks reported a large part (46.0 percent) of their holdings with residual maturity less than one year, as against 12.2 percent for all the SCBs.

• Between end-March 2010 and 2011, the share of central government securities with the coupon rate of ‘6 percent to 10 percent’ held by the SCBs increased further from 82.8 percent to 83.3 per cent.

• Share of the investments of SCBs under ‘held to maturity’ (HTM) as well as ‘held for trading’ (HFT) category increased from 15.0 percent and 21.6 per cent, respectively, as on March 31,2010 to 33.7 per cent and 41.2 percent, respectively, as on March 31, 2011.Correspondingly, the share of investments under ‘available for sale’ (AFS) category, decreased from 63.4 percent to 25.1 percent.

Introduction

The analysis of investment portfolio of Scheduled Commercial Banks (SCBs), excluding Regional Rural Banks (RRBs), is based on data furnished in the Basic Statistical Return (BSR)-5 as at end-March 2011 and covers 82 banks, viz., 6 from the State Bank group¹. 20 from the Nationalised Banks group (including IDBI Ltd.), 22 Indian Private Sector Banks and 34 Foreign Banks operating in India. These banks accounted for 97.3 percent of the total investments of all the SCBs² (including Regional Rural Banks) on the last reporting Friday of March 2011. Besides the domestic banks’ total investments, it covers the investments made in India by the foreign banks through their branches located in the country. These investments are classified into: (a) Indian government securities (i.e., central and state government securities taken together), (b) Other trustee securities, (c) Other domestic investments and (d) Foreign investments. Other trustee securities are trustee securities, other than government securities, which are specially approved for investments purpose under the Indian Trusts Act, 1882; it includes securities/ shares/bonds/debentures issued by major all-India bodies namely, Industrial Finance Corporation of India Ltd. (IFCI), National Bank for Agriculture and Rural Development (NABARD), UTI Mutual Fund (formerly UTI) etc as well as State-level bodies namely State Electricity Boards (SEBs), State Financial Corporations (SFCs), Regional Rural Banks, Co-operatives, State Industrial Development Corporations (SIDCs), State Transport Corporations (STCs), Municipalities, local authorities etc. Other domestic investments cover i) Shares, bonds and debentures of Indian joint stock companies (non-trustee), ii) Fixed deposits (FDs) with banks, iii) Certificate of deposits (CDs) and Commercial papers (CPs), iv) Units of Mutual Funds, v) Others not classified. Foreign investments comprise foreign government securities and other foreign investments. Moreover, investments by foreign offices of the domestic SCBs are classified into three segments namely, Indian securities, Foreign countries securities and other investments.

The investment data presented in this article, in general, is referred to by their face value and in the case of investments in shares, bonds and debentures of Indian joint stock companies, market value is also indicated along with the face value.

The results of the survey are presented in six sections. Section I relates to aggregate investments of SCBs according to types of securities and the Section II discusses bank group-wise investments according to type of securities and also includes information on the investments of SCBs in loans floated by the state governments, contributions in the share capital of RRBs, subscription to debentures of co-operative institutions, subscription to bonds of the state government guaranteed bodies, viz., Municipalities, State Electricity Boards, State Financial Institutions, State Transport Corporations, etc. Section III discusses maturity profile and coupon rate classification of investments in the government securities. Classification of investments of SCBs into ‘held to maturity’ (HTM), ‘available for sale’ (AFS) and ‘held for trading’ (HFT) categories is covered in section IV. Section V discusses investments of SCBs in State level securities. A summary of the results is presented in the concluding section VI.

I. Aggregate Position of Investments

Total investments of the SCBs, excluding RRBs, registered 8.9 percent increase during 2010-11 and stood at `18,672 billion as on March 31, 2011 as compared with a rise by 20.2 percent during the preceding year (Statement 1). Investments of bank offices located in India continued to have a majority share (98.8 percent) in the total investments. The balance 1.2 percent of total investments was held by the foreign offices of Indian banks in the form of foreign investments, comprising the securities of foreign countries and other investments made abroad.

The composition of investments of the SCBs, reflects banks’ preference to the investments in government securities (Statement 1 and Chart 1). As on March 31, 2011, government securities accounted for 77.4 percent of total investments of banks (79.0 percent as on March 31, 2010). The share of other trustee securities declined from 0.4 percent to 0.3 per cent while the share of ‘Other domestic investments’ increased by 2.2 percentage points to 21.1 percent as on March 31, 2011. Investments in foreign securities by domestic offices of the SCBs declined to `13.13 billion (`18. 69 billion as on March 31, 2010), contributing to 0.1 percent in the total investments.

SCBs’ holdings of central government securities grew at a lower rate of 7.7 percent to `11,423.29 billion, while their investments in state governments securities increased by 3.1 percent to `3,021.95 billion as on March 31, 2011 as compared with 15.2 percent and 28.0 percent increase, respectively, during the previous year. Investment of SCBs’ in other trustee securities declined by 16.6 percent during 2010-11 on top of 35.5 percent decline during 2009-10. SCBs’ ‘Other domestic investments’ increased by 21.4 percent in 2010-11 as compared with 35.1 percent increase recorded in the preceding year, and stood at `3,944.68 billion as at end-March 2011.

II. Bank Group-wise Investments of Scheduled Commercial Banks according to type of securities

II.1 Bank-group wise shares in total Investments of SCBs

Among the various bank groups, Nationalised Banks continued to account for the largest share of investments of the SCBs. As on March 31, 2011, these banks accounted for 47.9 percent share in total investments of SCBs, as against 48.2 percent share a year ago. The shares of State Bank group and Foreign Banks as on March 31, 2011, stood at 20.9 percent and 8.8 percent, respectively, as compared with 22.0 percent and 9.1 percent respectively in the previous year. The shares of Private Sector Banks increased to 22.8 percent from 20.7 percent a year ago (Chart 2). The State Bank group registered 3.4 percent growth in their investment portfolio during 2010-11, whereas in the case of Foreign Banks and Nationalised Banks, the increases were by 5.1 percent and 8.1 percent, respectively. Private Sector Banks registered much higher growth of 19.8 percent in investments during 2010-11(Statement 2).

II.2 Composition of Investments

II.2.1 Central Government securities: In the case of Nationalised Banks, holdings of central government securities increased by 12.7 percent during 2010-11, which is lower than 29.6 percent increase recorded during 2009-10. In the case of Private Sector Banks, the holdings of central government securities increased by 7.3 percent during 2010-11, followed by Foreign Banks with 5.0 percent increase. State Bank group recorded a decline of 1.8 percent in their holdings of central government securities in the above period.

II.2.2 State Government securities: Private Sector Banks’ investments in state government securities increased by 31.1 percent, while such investments grew only by 5.0 percent in the case of the State Bank group. Nationalised Banks’ investments declined marginally from the previous year whereas Foreign Banks’ investments in such securities remained meagre.

II.2.3 Other Domestic Investments: Investment by SCBs in other domestic investments stood at `3,944.68 billion as on March 31, 2011, recording an increase of 21.4 percent during 2010-11 (Statement 4). The investments by banks in debentures issued by joint stock companies constituted higher share of 70.3 per cent, in terms of market value, of the total investments in shares and debentures as on March 31, 2011 as against 65.2 percent as on March 31, 2010.

Private Sector Banks accounted for the largest share of 48.2 percent in other domestic investments as on March 31, 2011, followed by Nationalised Banks (38.3 percent). The State Bank group (20.7 percent) and Foreign Banks (14.1 percent) had relatively lower shares (Chart 3). Further, it was observed that all bank groups, except State Bank group, continued to show a marked preference for debentures over shares. In the case of State Bank group, equity shares accounted for 43.0 percent of investment in shares and debentures; they accounted for a meager 2.8 percent for the Foreign Banks.

II.2.4 Investment in Public Sector Enterprises: Investment of SCBs in bonds of Public Sector Enterprises declined by 14.8 percent to `95.97 billion as on March 31, 2011 from `112.69 billion as on March 2010 (Statement 5); such investments recorded a decline for the State Bank group (-21.84 percent), Nationalised Banks (-30.03 percent) and the foreign Banks (-8.46 per cent). However, the Private Sector Banks registered a moderate increase of 2.7 percent. Among investments in public sector enterprises, investments in Rural Electrification Corporation was having highest share of 35.6 percent followed by Power Finance Corporation’s bonds (34.9 percent).

III. Maturity Profile and Coupon rate Classification of Investments in Central and Sate Government securities

III.1 Maturity Profile of Outstanding Investment in Government Securities

The maturity classification of investments in central and state government securities for different bank groups as at of end-March 2011 is presented in Statement 6 and in Chart 4. As reflected in Chart 4, 12.2 percent of the holdings had maturity of less than 1 year, i.e., maturing between April 2011 and March 2012, while 35.3 percent of the securities were in the maturity bucket ‘more than 1 year but less than 6 years’ (i.e., maturing between April 2012 and March 2017) and another 38.2 percent stood in the maturity bucket of ‘more than 6 years but less than 11 years’ (i.e., maturing between April 2017 and March 2022).

The maturity profile of government securities was not uniform across different bank groups. The share of investments in the maturity bucket of ‘more than 1 year but less than 6 years’ (i.e. maturing between April 2012 and March 2017) was the highest for State Bank group (43.8 percent), followed closely by Foreign Banks (43.4 percent) and Private Banks (39.3 percent), while for the Nationalised Banks, it was lower at 29.0 per cent. Similarly, while share of investments in the maturity bucket of ‘more than 6 years but less than 11 years’ was higher for Nationalised Bank group (45.4 per cent) and State Bank group (42.1 percent), it was much lower in the case of Private Sector Banks (26.9 percent) and the Foreign Banks (7.3 percent).

The maturity profile of central government securities held by the SCBs as at end-March 2011 followed similar pattern as observed for total government securities (Chart 5). At all SCBs level, central government securities maturing in ‘more than 1 year but less than 6 years’ constituted the largest share (38.3 percent), followed by the securities maturing in ‘more than 6 years but less than 11 years’ (28.9 percent). At bank group level, share of the holdings of central government securities in the maturity bucket ‘more than 1 year but less than 6 years’ varied between 31.1 percent for Nationalised Banks and 50.9 percent for State Bank group. The proportion of central government securities with maturity period ‘more than 6 years but less than 11 years’ varied between 7.3 percent for Foreign Banks and 36.1 per cent for Nationalised Banks. In the case of State Bank group, 7.1 percent of the central government security portfolio was found to be maturing beyond 2022, while in the case of Nationalised banks and Private Sector banks, such share was 25.0 percent and 18.9 percent, respectively.

As regards the investments in the state government securities by the SCBs, 23.9 percent was due for maturing during April 2012 to March 2017 while 73.7 percent had maturity during April 2017 to March 2022. Barring Foreign banks, the maturity period-wise distribution of other bank groups was quite similar.

III.2 Investments in Central and State Government Securities (excluding Treasury Bills, Postal Obligations, etc.)-According to Coupon Rates

Distribution of banks’ investments in central government securities in various coupon rate categories revealed that there was no major change between 2010 and 2011. Share of central government securities with coupon rate ‘less than 6 percent’ increased from 6.7 percent to 7.1 percent, while those with coupon rate of ‘6 percent to 10 percent’ increased its share from 82.8 percent to 83.3 percent (Statement 7, Chart 7). The proportion of banks’ holdings of central government securities with coupon rate ‘10 percent and above’ declined from 10.5 percent to 9.6 percent (Chart 7).

As regards the state government securities, proportion of securities with coupon rate of ‘6 percent to 10 percent’ increased to 92.3 percent as on March 31, 2011 from 89.5 percent as on March 31, 2010 (Chart 8). The proportion of state government securities with coupon rate ‘10 percent and above’ decreased from 3.6 percent to 1.1 percent.

State Bank group’s holdings of central government securities with coupon rate ‘less than 6 percent’ increased its share from 8.7 percent as on March 31, 2010 to 12.2 percent as on March 31, 2011 while the share of those with coupon rate ‘10 percent and above’ declined from 9.6 percent to 6.9 percent (Chart 9). In the case of Nationalised Banks, the share of central government securities with coupon rate ‘6 percent to 10 percent’ declined from 88.6 percent as on March 31, 2010 to 85.9 percent as on March 2011 with corresponding increase in the share of the category ‘10 percent and above’ (Chart 9). In the case of Private Sector Banks, the share of central government securities with coupon rate of ‘6 percent to 10 percent’ increased from 79.8 percent as on March 2010 to 87.3 percent in March 2011. Central government securities with coupon rate of ‘6 percent to 10 percent ‘ held by the Foreign Banks had a higher share of 63.3 percent on March 2011 than 62.4 percent recorded in 2010, whereas the securities with coupon rate of ‘10 percent and above’ held by them recorded a lower share of 33.7 percent as on March 2011 as compared with that on March 2010 (36.1 percent).

In case of state government securities held by different bank groups, except Foreign Banks, more than ninety two percent of the holding was in coupon rate range of ‘6 percent to 10 percent’. Foreign Banks’ meager holding was entirely retained in the coupon rate range of ‘11 percent to 12 percent’ during 2010-11. (Chart 10).

IV. Classification of Investment Portfolio of Banks into HTM, AFS and HFT Categories

At the aggregate level, the shares of banks’ investments under the three categories viz.,‘held to maturity’ (HTM), ‘available for sale’ (AFS) and ‘held for trading’ (HFT) depicted significant changes in March 2011 as compared with those in March 2010 (Chart 11). The share of securities under HTM category increased from 15.0 percent to 33.7 percent, and those under HFT category also increased from 21.6 percent to 41.2 percent. Correspondingly, share of securities under AFS Category decreased from 63.4 percent to 25.1 per cent.

Banks’ investments in the government securities also depicted similar changes. Share of these investments classified under HTM category recorded a sharp rise to 37.6 percent as on March 31, 2011, from 15.0 percent a year ago, while the share under AFS category decreased from 66.2 percent to 21.4 percent in the same period. In the case of other domestic investments, 26.1 percent of investments were held in the HTM category, 32.5 percent in AFS category and 41.5 per cent in HFT category at end March 2011.

In case of the State Bank group and the Foreign Banks the share of investments classified as AFS declined sharply between March 2010 and March 2011 matched by increase in the shares under HTM and HFT segments. The share of AFS segment, however, increased for the Nationalised Banks and Private Sector Banks with corresponding decline in the share of HFT category.

V. Investments of Scheduled Commercial Banks in State-level Securities

State-level securities consists of securities floated by the state governments, bonds of state-level bodies guaranteed by the state governments, share capital of RRBs and debentures of cooperative institutions. SCBs’ investments in such securities increased moderately by 2.7 percent to `3,043.68 billion as at end March 2011 (Statement 8). SCBs’ investment in the state government securities (i.e., coupon bearing State Development Loans (SDL)), increased by 3.1 percent during 2010-11, and its share increased from 98.9 per cent of State-level investments as on March 31, 2010 to 99.3 percent as on March 31, 2011. Of the total outstanding state government securities of `6,118.01 billion as at end- March 2011, SCBs’ holdings amounted to `3,021.95 billion indicating an absorption rate of 49.4 percent (56.1 percent as at end-March 2010) (Statement 9). The investment in all other state level securities declined to `21.73 billion (`31.25 billion as on March 31,2010). Other important state-level investments were in the RRBs (0.4 percent), followed by the securities of State Financial Corporations (SFCs) (0.1 percent) and State Electricity Boards (0.1 percent). Banks investments in six States, viz., Maharashtra, West Bengal, Andhra Pradesh, Tamil Nadu, Uttar Pradesh, and Gujarat collectively accounted for more than half of the investments in various state-level securities as on March 31, 2011.

Bank group-wise pattern of investment in the state-level securities is presented in Statement 10. Nationalised Banks accounted for the highest share at 59.8 percent, followed by the State Bank group at 32.6 percent. Nationalised Banks held a high share in investments in the state-level securities in most of the States/UTs, except in some of the north-eastern states namely Mizoram, Sikkim and Manipur, where State Bank group remained invested with higher shares of 55.2 percent, 68.7 percent and 82.0 percent, respectively.

VI. Summary

Total investments of SCBs (excluding RRBs) increased by `1,524.20 billion to `18,672 billion as on March 31, 2011, resulting in reduced growth of 8.9 per cent in comparison with the high growth of 20.2 percent recorded in the previous year, mostly due to revival in credit growth. This trend was across all the bank groups except the private sector banks, which recorded higher growth of 19.8 percent than the prveious year’s growth (14.0 percent). Most of the investments of the banking sector were in the Indian Government securities, mainly to meet the SLR requirements as also for meeting collateral obilagtion required for liquidity accommodations obtained from the short- term money market. Investments in such securities, however, recorded relatively lower growth of 6.7 percent in 2010-11in tune with the reduction in SLR requirements to 24 percent.

The maturity profile of the government securities held by the SCBs was, by and large, the same, with an increasing trend in the shares of holdings of government securities with long-term maturity buckets. During 2010-11, almost four fifths of the central government securities were in the the coupon rate range of 6 percent to 10 percent.

Investments of the banking sector in state-level securities increased moderately during 2010-11. While the holding of state government securities during 2010-11 increased moderately, the investments in all other categories declined. State government securities of Maharashtra, West Bengal and Andhra Pradesh had the highest share in the State Government securities portfolio of the banks.