Even as the central bank is grappling with a deluge of foreign exchange inflows, back home huge amounts have flowed into the banking system parked in current accounts of various banks in the past two to three weeks, thereby increasing the money supply.

According to the latest figures released by the Reserve Bank of India (RBI) in its weekly statistical supplement (WSS), total foreign exchange reserves in the system rose $3.4 billion during the week ended January 25 to touch $288.3 billion. In the past two to three weeks, there was a forex inflow of nearly $12 billion into the system, mainly to be invested in a slew of IPOs lined up during the period and in the days to come.

In addition to foreign money, even a number of domestic investors applying for IPOs have added Rs 29,236 crore to demand deposits of commercial banks during the fortnight ended January 18. As a result, the total stock of money — of which demand deposits account for a sizeable share — in the system went up Rs 56,771 crore to touch Rs 38,07,105 crore. All components of money supply — currency, term deposits as well as demand deposits — recorded a strong growth during the fortnight.

At the current levels, the annual year-on-year (y-o-y) growth in money supply went up to 23.8% compared to 22.4% as of end of the previous fortnight. At the current levels, the money supply growth is way above the central bank’s comfort levels of 17-17.5%.

In the banking sector, aggregate deposits mobilised by commercial banks amounted to Rs 30,30,640 crore as on January 18, up Rs 42,433 crore over the previous fortnight’s levels. While demand deposits rose Rs 29,236 crore, term deposits with commercial banks rose Rs 13,198 crore.

Investments in government and other approved securities by banks touched Rs 9,58,496 crore as on January 18, up Rs 3,607 crore over the previous fortnight’s levels. Loans extended by them touched Rs 21,66,847 crore, up Rs 20,329 crore, against the previous fortnight’s levels. While food credit dipped Rs 2,100 crore, non-food credit moved up Rs 22,420 crore during the fortnight.

In other developments reported in the WSS, the Centre has refrained from resorting to ways and means advances (WMA) — a temporary overdraft to meet its revenue mismatches. States, on the other hand, dipped Rs 30 crore to Rs 26 crore during the week ended January 25.

Source : TOI

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