Banks step up borrowing via CDs amid deposit tightness; raise ₹77,875 cr

Outstanding CD issuance tops record ₹5.7 trn during the period

Banks have stepped up borrowing through certificates of deposit (CDs), with the banking system raising nearly ₹78,000 crore through this route in the fortnight ended November 28, reflecting the increasing tightness in deposit accretion, which, in turn, is keeping the credit-deposit ratio of the system elevated. Banks are likely to keep tapping this route in the coming weeks and months as credit growth in the system is showing signs of picking up while deposit growth lags. 

According to the latest data from the Reserve Bank of India (RBI), banks raised ₹77,875 crore through CD issuances in the November 28 fortnight, marking the highest amount raised through this route since the June 27 fortnight, when the banking system raised ₹85,608 crore through CDs. 

Meanwhile, outstanding CD issuances climbed to a record ₹5.70 trillion in the fortnight ended November 28, surpassing the previous fortnight’s high of ₹5.34 trillion. Before this, the peak was ₹5.32 trillion in the March 21 fortnight, when banks and financial institutions raised over ₹1.17 trillion through CDs, driven largely by IndusInd Bank’s heavy borrowing amid pressure on its liquidity coverage ratio following disclosures of discrepancies in its derivatives portfolio. 

In the previous fortnight ended November 14, the banking system had raised nearly ₹55,000 crore through CDs, which was more than double the amount raised through this route in the previous two fortnights.

 

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.

 

“Credit growth continues to outpace deposit growth, and liquidity in the system remains relatively tight. With retail deposits not coming in at a sustained pace, banks are increasingly relying on CDs to bridge the funding gap. In many cases, banks also require short-term buffers to meet reporting requirements, prompting them to borrow for the short term through CDs,” said Saurabh Bhalerao, associate director, CareEdge Ratings.

 

“With credit growth expected to pick up in the second half of 2025-26 (H2FY26), banks are likely to tap all available borrowing avenues, including CDs and the capital markets, to compensate for deposit tightness. They are in a tricky position: they need to attract more deposits, but the recent rate cut requires them to lower deposit rates, making it harder to draw in new funds. Beyond a certain threshold, banks cannot cut deposit rates further, as doing so would dampen inflows even more. Given these dynamics, margin pressure for banks is likely to persist,” he said.

 

According to RBI data, credit growth in the fortnight ended November 14 stood at 11.4 per cent, outpacing deposit growth at 10.2 per cent and leaving a 120 bps gap between the two. Experts expect credit demand to strengthen further as emerging economic green shoots take hold, supported by goods and services tax (GST) rationalisation, income tax relief, and the cumulative 125 bps rate cut delivered by the central bank.

 

While credit growth appears to be strengthening, banks are struggling to mobilise deposits after having already trimmed deposit rates following the central bank’s rate cuts. Lenders have been cautious about reducing rates too sharply, wary of losing retail deposits and putting additional strain on their margins. With yet another policy rate cut now in place, banks find themselves in a precarious position, needing to safeguard margins and attract deposits, yet unable to lower deposit rates further. 

 

“The pickup in credit since September, coupled with still-sluggish deposit growth, has pushed lenders toward the CD market to bridge short-term funding gaps. Liquidity should improve once OMOs (open market operations) and USD/INR buy–sell swaps start feeding through, but CD issuance will likely stay elevated for now, easing only in the first quarter of 2026-27 (Q1FY27). Still, CDs won’t become a dominant liability source, as their short-term maturity weighs on banks’ LCR (liquidity coverage ratio) and naturally limits how much dependence they can build on this channel,” said Anil Gupta, senior vice president & cohead-financial sector ratings, Icra.

 

"Bulk deposit rates continue to be competitive than retail deposit rates because of faster transmission of rate cuts. Reducing retail deposit rates is likely going to be a gradual process as banks may observe behavior of depositors and competition, given the other avenues available to retail depositors. As we move into Q4FY26, this balancing act will get tougher, given that credit growth is expected to be strong. Banks must keep deposits flowing to fund the growth, and rate cut on retail deposits may slow down fresh deposit accretion. Hence, further reductions in deposit rates become increasingly difficult in near term,” he said.