Banks actively raising money through CDs and FDs amid strong credit demand

24 Aug 2022 , 07:36 AM

Banks are actively seeking money from CDs, bonds, and fixed deposits as a result of the recent rise in credit demand (FD). The financial sector’s excess liquidity abruptly decreased from its record level, forcing aggressive capital raising.

Using information from the Prime database, it has been determined that banks have raised approximately Rs42,000 crore through CDs. This is still the case despite continuously rising rates for these gadgets.

With a total of Rs13,550 crore raised for CDs in August, Indian Bank led the field, followed by HDFC Bank with a total of Rs6,550 crore and Punjab National Bank with a total of Rs2,875.

Many Indian financial institutions, such as State Bank of India (SBI), Indian Overseas Bank, Indian Bank, Punjab National Bank, Kotak Mahindra Bank, and ICICI Bank, have increased their fixed deposit (FD) rates by 5-20 basis points across maturities in an effort to attract investors.

The growth of bank loans has consistently been far faster than the growth of bank deposits. The recent acceleration in credit growth has been attributed to a number of factors, including low base effect, small ticket size loans, increasing working capital needs because of elevated inflation, and a move to bank borrowing because of high rates in the capital market.

The Reserve Bank of India reports that bank credit has grown by more than 14% yearly.

Meanwhile, over the past few months, the liquidity of the financial sector has grown significantly. It has fallen from the high of Rs1.30 lakh crore last week to something in the neighbourhood of Rs45,000 crore as of this writing. The sharp fall was probably caused by payments for government bonds and outflows for goods and service tax payments.

Market participants predict banks to release more capital soon because credit demand is anticipated to soar throughout the holiday season. On the other hand, rates on the instruments will rise as surplus liquidity decreases.