CD rates jump above 7% for marquee banks as outstanding hits ₹5.75 trn

Deposit tightness has pushed certificate of deposit outstanding to a record ₹5.75 trillion, with marquee banks raising one-year funds at over 7%

Deposit tightness in the system, reflected in deposit growth lagging credit growth by roughly 180 basis points, has led banks to rely more heavily on the certificate of deposit (CD) market. Consequently, outstanding certificates of deposit climbed to a record ₹5.75 trillion in the fortnight ended January 15, while CD rates hardened, with marquee banks, including HDFC Bank and IndusInd Bank, borrowing at over 7 per cent in one-year paper  Data from the Clearing Corporation of India Ltd (CCIL) show that HDFC Bank raised ₹450 crore at 7.01 per cent in one-year money, while IndusInd Bank borrowed ₹1,075 crore at 7.49 per cent for the same tenor. ICICI Bank raised ₹2,685 crore at 6.95 per cent, while state-owned lenders borrowed in the 6.94–6.97 per cent range.

   

Meanwhile, Reserve Bank of India (RBI) data show that total outstanding CDs in the market topped ₹5.75 trillion, a record high. However, issuance during the fortnight ended January 31 more than halved to ₹40,189 crore from ₹88,512 crore in the fortnight ended December 31, the second-highest quantum raised in a fortnight, due to elevated rates.

 

Banks have increasingly resorted to CDs, with lenders issuing over ₹3.77 trillion of CDs in the last six fortnights. Issuances began picking up as deposit accretion in the system started lagging credit growth, which gained momentum from mid-September due to the cumulative effects of GST rationalisation and rate cuts by the RBI.

As per the latest RBI data, in the fortnight ended December 31, credit growth stood at 14.5 per cent, while deposit growth stood at 12.7 per cent.

 

“Commercial paper and certificate of deposit rates have firmed up despite a policy rate cut due to tight liquidity conditions. In this environment, banks may increasingly tap bulk deposits outside the CD market,” said Anil Gupta, senior vice-president and co-group head (Financial Sector Ratings) at Icra.

 

Gupta added that CD rates would remain elevated unless the RBI introduced liquidity-boosting measures, which the central bank announced on Friday. The RBI unveiled a set of liquidity measures through open market operations (OMOs), dollar–rupee buy-sell swaps, and long-term variable rate repo (VRR) operations to infuse liquidity into the banking system.

OMOs will involve the purchase of government securities worth ₹1 trillion in two tranches of ₹50,000 crore each on February 5 and February 12. A 90-day VRR auction for ₹25,000 crore will be conducted on January 30. Additionally, a dollar–rupee buy-sell swap of $10 billion for three years will be held on February 4.

 

The central bank said the decision was taken after reviewing current liquidity and financial conditions, adding that it would take further steps to ensure orderly liquidity conditions.

 

“Indian banks have increasingly begun resorting to short-term certificates of deposit, largely in the one- to three-month segment and up to one year, with one-year CD yields rising to as high as 7.49 per cent. This points to a growing dependence on rollover funding at a time when system liquidity is adequate but not in surplus,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP.

 

“In the absence of excess liquidity to ease short-term rates, CD yields have hardened sharply, forcing banks to borrow at elevated costs even for short maturities,” he added.

 

“This rising reliance on short-term CDs is a cause for concern, as it heightens refinancing risk and signals pressure on liability management amid strong credit growth and relatively slower deposit accretion,” Srinivasan said.

 

CDs are rated by approved rating agencies, enhancing their tradability in the secondary market based on demand. Banks rely on CDs for multiple reasons, including trading opportunities, liquidity management, and addressing maturity mismatches.

 

Going ahead, banks are expected to increasingly rely on wholesale deposits to fund credit growth, potentially pushing up the total outstanding stock of CDs. However, experts note limitations in the CD market, where mutual funds are dominant investors. With corporate issuers offering more attractive rates in the three- and six-month commercial paper market, a significant share of mutual fund flows is being diverted there instead of into CDs.