Certificate of deposit issuances fall amid easy liquidity

RBI's annual report said that the average fortnightly issuances of CDs decreased to Rs 29,700 cr during 2014-15 from Rs 30,600 cr compared annually

The fortnightly issuances of Certificate of Deposits (CDs) continue to be low amid comfortable liquidity in the system. Data from Reserve Bank of India (RBI) released on Friday showed that for the fortnight ended July 24, CD issuances were a meager Rs 3,760 crore compared with Rs 22,650 crore a fortnight ago and since the start of this fiscal the average fortnightly issuances of CDs have dropped to Rs 22,777 crore.

RBI's annual report released on Thursday said that the average fortnightly issuances of CDs decreased to Rs 29700 crore during 2014-15 from Rs 30,600 crore during the previous year.

"CD issuances have gone down because of easy liquidity in the system. Banks are not looking for raising CDs. The easy liquidity is a consequence of poor credit growth. The second half of the fiscal is usually a busy season due to which we should see some pick up in activity," said R Sivakumar, head of fixed income at Axis Mutual Fund. However, Sivakumar added that the street may not see CD issuances coming back at a pace which was the seen in the past.

CDs are issued by banks to raise short-term funds. In recent times though CD issuances have been going down, the issuances of Commercial Papers (CPs) which are issued by companies have picked up as raising CPs turns out to be cheaper for corporates rather than borrowing from banks. This is because even though the central bank has cut the repo rate or the rate at which banks borrow from the central bank by 75 basis points since the start of 2015, monetary transmission has been slow.

"If you look at the portfolios of liquid funds as an aggregate, CP holdings are in majority. I think this is the function of the wedge that is opening up between deposit and credit growth. There is absolutely no pressure on banks to raise deposits. This is showing up even in their CD issuances. In the busy season especially in the January-March quarter, we may see some pick-up in CD issuances," said Suyash Choudhary, head-fixed income, IDFC Mutual Fund.

As per latest RBI data, credit in the system grew by 9.37% to Rs 66,716.47 crore at the end of the fortnight ended August 7 from Rs 61,002.71 crore a year ago. In the same period deposits inched up by about 11.52% to Rs 89,392.39 crore from Rs 80,155.25 crore a year ago.