In 2024, PSU banks' borrowing percentage in the uncollateralized money segment dropped to 3%: RBI

According to the Reserve Bank of India's (RBI) July bulletin, state-owned banks' proportion of borrowings in the uncollateralized money sector decreased from 3 percent in 2019 to just 3 percent in 2024 as these lenders expanded their activity in the collateralized segment. Additionally, the bulletin stated that during the same time frame, private banks also showed a downward trend. The call, notice, and term money markets are all included in the uncollateralized money segment. In these markets, primary dealers, regional rural banks, state, district central, and urban cooperative banks, as well as scheduled commercial institutions (such as payment banks and small financing banks) can act as lenders and borrowers. Conversely, the largest lenders in the uncollateralized money bucket were cooperative banks. The bulletin also noted that while cooperative banks' participation has grown since 2019, their transaction volume has not changed much over time. According to the RBI, cooperative banks accounted for an average of 57% of all transactions between 2019 and 2024, compared to roughly 66% of monthly lending volume during the epidemic. According to the Reserve Bank of India's July bulletin, public sector banks (PSBs) have continued to reduce their reliance on the uncollateralized money market, with their borrowing share standing at just 3% in 2024—unchanged from 2019. This trend reflects a broader shift among PSBs toward the collateralized segment, likely driven by efforts to strengthen risk management and secure more stable funding sources. The uncollateralized money segment, which includes call, notice, and term money markets, allows borrowing and lending without collateral and is typically used for managing short-term liquidity. The bulletin also revealed that private banks have shown a similar downward trend in their participation in the uncollateralized segment during the same period. This indicates a market-wide preference among larger, regulated banks to move away from unsecured borrowing, possibly due to evolving regulatory frameworks or internal risk appetite changes. As a result, the dynamics of participation in this segment have shifted over time, leading to a noticeable change in the profile of market participants. Interestingly, cooperative banks have emerged as the leading lenders in the uncollateralized money market. While their participation has increased since 2019, their overall transaction volume has remained relatively stable. On average, cooperative banks accounted for 57% of total transactions between 2019 and 2024. During the peak of the pandemic, their role became even more prominent, with their share of monthly lending volumes rising to around 66%, underscoring their importance in meeting liquidity needs in times of stress.