Indusind Bank's funding cost shot up 15bps in a week amid derivative loss

IndusInd Bank raised Rs 11,000 crore by issuing certificates of deposit (CDs) across a range of maturities

IndusInd Bank’s borrowing cost has increased by 15 basis points (bps) in a week, amid derivative loss and looming credit assessment downgrade fears. 

 

On Monday, the lender raised ₹11,000 crore by issuing certificates of deposit (CDs) across a range of maturities, with coupon rates varying between 7.80 per cent and 7.90 per cent, which includes ₹2,000 crore via 12-month CD at 7.9 per cent.

 

This marks a 15 bps increase from the rates the bank offered on its CDs in the previous week, according to data by Clearing Corporation of India Limited (CCIL).

 

On March 10, the bank raised ₹1,890 crore by issuing 12-month CDs at a coupon rate of 7.75 per cent.

 

 

On the other hand, rates on CDs issued by other banks like HDFC Bank, RBL Bank, and Bank of Baroda remained unchanged as compared to the previous week. Indian Bank issued CDs maturing in 12 months at a rate of 7.57 per cent, as compared to 7.61 per cent in the previous week.

 

IndusInd Bank's fundraising via CDs on Monday accounted for over 40 per cent of the total ₹27,140 crore issued by all banks on the same day, CCIL data said.

 

The bank’s fund raising through CDs comes at a time when the bank is actively working to bolster its funding position. The bank’s liquidity coverage ratio fell to 113 per cent as of 9 March, 2025, as compared to 118 per cent at the end of December. 

 

LCR remained above the regulatory requirement of 100 per cent.

 

The spike in the cost of deposits put further pressure on net interest margins of the bank in the current quarter. The bank’s net interest margin fell from 4.25 per cent in Q1 of the current financial year, to 4.08 per cent in Q2, and then dipped to 3.93 per cent in the third quarter.

 

“The high reliance on wholesale deposits puts the bank at risk of sharp deposit outflows based on fears of deeper accounting issues,” a note by Bernstein said.

 

“RBI’s statement should help address some of these concerns but this, just like the pledged stock, creates the risk for the bank slipping into a vicious cycle. A stable Q-o-Q deposit number when the bank reports its headline metrics in a few weeks could assuage investor concerns on this front,” the note said.

 

On Saturday, the RBI appealed to depositors, urging them not to react to the speculative reports.  The central bank said the Mumbai-based lender’s financial position remains satisfactory.

 

According to the RBI, IndusInd Bank’s capital adequacy ratio stood at 16.46 per cent, while the Provision Coverage Ratio was 70.2 per cent for the quarter ending December 31, 2024. 

 

 

Certificate of deposit rates
		10-03-25	17-03-25
Bank	Tenor	Rate (in %)	Rate (in %)
Indusind Bank	12 months	7.75	7.9
HDFC Bank	3 months	7.58	7.58
RBL Bank	3 months	7.96	7.96
Bank of Baroda	9 months	7.65	7.64
Indian Bank	12 months	7.61	7.57