CD issuances fall significantly in April as liquidity conditions ease

Total CD issuances amounted to around Rs 19,850 crore as of 21 April, a significant decrease from the Rs 1.2 trillion worth of issuances in March

Issuances of certificates of deposit (CDs) fell significantly in April on the back of easing liquidity conditions which also resulted in rates falling by around 40 basis points (bps).

Total issuances stood at Rs 19, 850 crore as of April 21, as compared to Rs 1.2 trillion worth of issuances in March. The issuances were the lowest since April 2022.

“March being the year end, the issuances were more and rates were elevated. The liquidity has also improved within the system, which is leading to a fall in rates,” said VRC Reddy, head of treasury, Karur Vysya Bank.

The banking system liquidity was in surplus throughout April until Friday. It fell into deficit mode on Saturday on the back of GST outflows, said market participants. It was in a deficit of Rs 30,133 crore on Sunday, according to the latest data by the Reserve Bank of India. On the other hand, the liquidity was largely in deficit mode in January, February and March.

The rates on three-month and six-month CDs fell by 40 basis points, whereas on 12-month CDs fell by 10 bps.

Banks issued CDs worth Rs 9.56 trillion in FY24 against Rs 7.28 trillion in the previous financial year, according to data by Prime data base. However, the net amount raised was Rs 71,3000 crore as banks issued short-term CDs to roll them over on maturity. The outstanding amount on CDs stood at Rs 3.04 trillion as of March 24.

Banks raised the highest amount of Rs 3.6 trillion in the last quarter of the financial year, against Rs 2.5 trillion in the third quarter. In February, the issuance of CDs reached its peak for the financial year, totalling Rs 1.49 trillion. This marked a remarkable 162 per cent increase compared to the Rs 56,795 crore raised in February 2023.

“The month of February and March saw a deficit in liquidity, whereas in April the liquidity is comfortable even after GST outflows which is why the short-term rates have fallen,” said a money market dealer at a state-owned bank.  

On a year-on-year basis, total issuances fell by 23 per cent. Banks had raised Rs 25, 813 crore through CDs in April 2023.

Facing sluggish growth in deposits, banks turned to mobilising funds through issuing certificates of deposit (CDs) in the financial year 2023-2024, which saw a notable surge of 31 per cent over the year.

Market participants said that there was robust demand from mutual funds which also weighed on rates.