Mumbai: With deposit mobilisation becoming a challenge, Indian banks are relying heavily on certificates of deposit (CDs) to meet their near-term funding needs, according to central bank data.
In July, CDs issued by banks grew by more than 38% year-on-year to ₹4.3 lakh crore, data from the Reserve Bank of India (RBI) shows. During the same period, system-wide deposits grew by 11.8% to ₹186.8 lakh crore.
Data show that Punjab National Bank and Bank of Baroda were the top lenders which raised money through CDs, while among private lenders, HDFC Bank was also active in this market.
CDs are low-tenure deposits with relatively higher ticket sizes and elevated interest rates. Generally, money market funds, followed by corporates and trusts, are the key participants in CDs.
“We are witnessing an increased momentum in CDs in recent quarters for the banking sector as fixed deposit flows remain a laggard, stretching the credit-deposit ratio northwards,” said Jignesh Shial, Head of BFSI Research at InCred Capital. “Most money raised through CDs during the current financial year is for shorter tenure maturity, which may be attributed to uncertainty among bankers about credit growth sustainability or optimism in banks’ ability to raise long-term deposits.”
Data collated by InCred Capital show that Punjab National Bank has raised ₹70,460 crore through CDs in the current financial year, accounting for 19% of the total amount that lenders have raised through CDs – the highest among all banks. Bank of Baroda comes next with ₹45,030 crore, a 12.3% share of the total money raised through CDs.
Among private sector banks, HDFC Bank has been the largest CD issuer so far during the year, with total issuance of ₹39,410 crore, or nearly 10.7% of the total issuance. Axis Bank has also raised a sizable chunk, with its overall issuance at ₹27,010 crore so far in the current financial year, which is a 7.3% share.
“A decline in short-term rates in June has prompted banks to increase certificate of deposit issuances to meet funding gaps,” said Sanjay Agarwal, senior director, Care Ratings. “Banks are also sourcing funds via the certificates of deposit at a relatively higher cost which have shown significant traction. This focus aims to prevent constraints on credit uptake due to deposit growth.”
CDs have been a mode of financing primarily for shorter tenures, a trend which remains intact even now. Nearly 51.3% of CDs were in the maturity bucket of 91-180 days.
Banks issued CDs worth ₹2.65 lakh crore up to June 28 this fiscal, higher than ₹1.45 lakh crore in theyear-ago period , showed Care Ratings data.
