CD rates top 8% for smaller banks amid banking system liquidity tightness

Indusind raises nearly Rs 15,000 via CDs this week with PSBs take a major chunk

Amid liquidity tightness in the banking system, certificate of deposit (CD) rates topped 8 per cent for some smaller banks, with rates remaining on the higher side for derivatives loss-hit IndusInd Bank.

 

On Thursday, CSB Bank raised ₹100 crore via one-year CDs at 8.5 per cent, while Utkarsh Small Finance Bank issued three-month CDs at 8.05 per cent to raise ₹50 crore.

 

IndusInd raised ₹1,000 crore through CDs at 7.9 per cent on Thursday, bringing its total fundraising this week to ₹14,750 crore to tide over a cash crunch amid tight system liquidity.

 

According to dealers, a large public sector bank subscribed to more than half of the funds raised by IndusInd this week.

   

Another large public sector bank, Punjab National Bank, raised ₹4,950 crore on Thursday through various maturities at 7.56–7.57 per cent.

 

The liquidity deficit in the banking system — measured by the Reserve Bank of India (RBI) injecting funds through the liquidity adjustment facility — stood at ₹2.29 trillion on Wednesday, the latest data showed.

 

Amid liquidity tightness, banks continue to rely on CDs to meet their funding requirements, resulting in CD issuances reaching an all-time high.

 

According to RBI data, in the primary market, CD issuances grew by 34 per cent year-on-year to reach an all-time high of ₹10.58 trillion during 2024-25 (up to March 7, 2025).

 

During the quarter so far, the RBI has injected around ₹5.5 trillion of durable liquidity into the banking system through a combination of open market operations purchases, longer-duration variable repo rate auctions, and foreign exchange swaps.

 

Last week, IndusInd informed the exchanges that an internal review of accounts related to its derivatives portfolio revealed some discrepancies, which are expected to have a 2.35 per cent impact on the bank’s net worth as of December 2024. The hit is estimated to be around ₹2,000 crore.

 

IndusInd’s liquidity coverage ratio fell to 113 per cent as of March 9, compared to 118 per cent at the end of December, though the ratio remained well above the regulatory requirement of 100 per cent.

 

The RBI reassured depositors that there is no reason to react to speculative reports, as the bank’s financial health remains stable and under close monitoring by the regulator.