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Banks and financial institutions (FIs) raised over ₹1.17 trillion through certificates of deposit (CDs) during March 7-21, the highest in a fortnight since May 2021, according to Reserve Bank of India (RBI) data.
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. The bank’s liquidity coverage ratio fell to 113 per cent as of March 9, 2025, compared to 118 per cent at the end of December.
The surge in CD issuances also highlights tightening deposit conditions in the banking system, prompting banks to rely heavily on CDs to meet credit demand. Loan demand typically picks up towards the financial year-end.
During the fortnight, state-owned Punjab National Bank (PNB) raised ₹28,140 crore, followed by HDFC Bank (₹18,140 crore), IndusInd Bank (₹15,850 crore), and Bank of Baroda (₹14,265 crore). Yields on PNB’s CDs ranged from 7.56 per cent to 7.58 per cent, while HDFC Bank’s CD yields were between 7.50 per cent and 7.63 per cent. Bank of Baroda’s yields ranged from 7.55 per cent to 7.60 per cent, whereas IndusInd Bank’s yields were higher, between 7.75 per cent and 7.90 per cent. IndusInd Bank’s borrowing cost has increased by 15 basis points (bps) amid derivative loss.
“Apart from the year-end funding need, the record CD issuance is also driven by the liquidity requirement at one of the large private banks, which may have faced elevated deposit outflows,” said Anil Gupta, VP-financial sector ratings, Icra.
According to Clearing Corporation of India (CCIL) data, total CD issuances in March exceeded ₹2.25 trillion. PNB led the issuances with over ₹35,290 crore, followed by HDFC Bank at ₹31,465 crore, Bank of Baroda at ₹26,040 crore, Canara Bank at ₹20,325 crore, and IndusInd Bank at ₹16,550 crore.
CDs are negotiable money market instruments issued by banks with maturities ranging from a minimum of seven days to a maximum of one year. Financial institutions, however, can issue CDs with maturities between one year and three years. These instruments 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. CDs also serve as a cost-effective alternative to bulk term deposits, contributing to the overall deposit pool. Additionally, they help banks replenish maturing deposits, ensuring smoother liquidity management, which reinforces their dependence on such instruments.
While loan growth in the economy has moderated from its peak, it was expected to pick up at the end of financial year 2024-25 (FY25). With deposit mobilisation remaining slow, the reliance on CDs by banks has increased in recent months. Banking credit in the economy grew by 11.1 per cent year-on-year (Y-o-Y) in the fortnight ended March 7, while deposits grew at 10.2 per cent during the same period.
