Banks raised ₹55K crore through CDs in fortnight ended November 14

Outstanding certificate of deposits touch an all-time high of Rs 5.34 trillion

With deposit growth remaining sluggish and the credit – deposit ratio of commercial banks crossing 80 per cent, banks have ramped up their borrowing in the certificate of deposit (CD) market.

 

In the fortnight ended November 14, CD issuances climbed to nearly ₹55,000 crore — double the borrowings of the preceding two fortnights and the highest since the September 19 fortnight.

 

According to Reserve Bank of India (RBI) data, the total outstanding CDs issued at the end of November 14 stood at record high of ₹5.34 trillion. The last high was ₹5.32 trillion back in the March 21 fortnight this year as banks and financial institutions (FIs) raised over ₹1.17 trillion through CDs.

 

This period saw IndusInd Bank aggressively tapping the CD market with its liquidity coverage ratio declining after its disclosure of discrepancies in its derivatives portfolio.

 

Data shows banks issued ₹54,949 crore worth of CDs in the fortnight ended November 14 at interest rates ranging from 5.5 per cent to 6.63 per cent.

 

In the preceding fortnight ended October 31, banks had issued ₹24,530 crore of CDs at rates between 5.76 per cent and 6.46 per cent. In the fortnight ended October 17, CD issuances stood at ₹24,608 crore, with rates in the 5.5–6.4 per cent range.

 

CDs are negotiable money market instruments issued by banks with maturities ranging from a minimum of seven days to a maximum of one year. CDs serve as a cost-effective alternative to bulk term deposits, contributing to the overall deposit pool of banks. Additionally, they help banks replenish maturing deposits, ensuring smoother liquidity management, which reinforces their dependence on such instruments.

 

CDs are rated by approved rating agencies, enhancing their tradability in the secondary market based on demand. Banks rely on CDs primarily because they offer multiple benefits in the financial system, including trading opportunities, liquidity management, and addressing maturity gaps.

 

Banks have hiked CD issuances as the credit – deposit ratio of banks topped the 80 per cent threshold for the first time. This is higher than the regulatory comfortable limits, signalling resource mobilisation challenges for lenders at a time when loan demand seems to be picking up in the economy.

 

A CD ratio in the range of 75-80 per cent is seen to be within the regulator’s comfort zone.

 

“There is a clear tightness in deposit mobilisation although liquidity in the system remains comfortable. The pick-up in credit demand since the festival season has sustained, and the momentum is continuing, with credit growth consistently outpacing deposit growth. In fact, since the August 22 fortnight, credit expansion has remained higher than deposit accretion. As a result, banks have increasingly turned to wholesale funding, leading to a sharp rise in bulk deposit mobilisation. Incremental credit – deposit ratio which stood at 42 per cent in August 22 fortnight, now has climbed to 74 per cent in the fortnight ended October 31. This indicates a growing reliance on bulk deposits to bridge the widening gap between credit and deposit growth,” said Anil Gupta, senior vice president & co-head group financial sector rating, ICRA.