CD issuances dip as retail deposits soar

Banks are going slow on raising funds through certificates of deposits (CDs), even at low rates, owing to the rise in the flow of retail deposits and the relatively low credit pick-up.

Rates on CDs have fallen 10-15 basis points over a month. According to market participants, the volumes have also reduced to around 35 per cent of issuances seen in the April-June quarter. As on July 1, banks had issued Rs 75,000 crore in a fortnight.

Currently, the rate for three-months CDs is 9.25 per cent, while interest rates on fixed deposits of the maturity are around seven per cent. "We are not taking bulk deposits above card rates, since the response to the increase in interest on retail deposits has been good, and funds are available at much cheaper rates," said a treasury official of a public sector bank.

Banks have increased interest rates on retail term deposits by 100-250 basis points across maturities in the last six months. As a result, bank deposits rose 17.25 per cent as on July 29, compared to the corresponding period last year. Since April, deposits have increased by Rs 2.73 lakh crore, or 5.2 per cent, which is higher than the growth of Rs 1.81 lakh crore, or four per cent, in the same period of the last financial year.

Bankers said there was no need for raising funds at high rates, since credit was yet to pick up. "Credit offtake is not happening because of higher lending rates, it is expected to go up only by the next quarter," said a senior public sector bank official. According to Reserve Bank of India (RBI) data, in this financial year so far, bank advances have increased by around Rs 63,000 crore, or 1.6 per cent, while the growth was at Rs 1.35 lakh crore, or 4.2 per cent, in the corresponding period of the last financial year.

Bankers feel CD issuances would increase towards the end of the next month. "Most of the CDs would mature in September and banks would also like to shore up, as it is the end of the quarter," said Pawan Bajaj, deputy general manager, Bank of India.

He also added though the rates on CDs would move in accordance with liquidity conditions, they may not shoot up significantly.