Indian banks increase issuance of CDs

23 Aug 2022 , 08:04 AM

As funding in the banking system continues to decline, Indian banks have found new avenues for their fundraising activity through the sale of certificates of deposits, analysts told ET.

According to data compiled by Reuters, Indian private and state-run banks raised approximately Rs300 billion ($3.76 billion) through two-month to one-year CDs in the two weeks leading up to August 19. This amount was significantly higher than the roughly Rs50 billion raised in the two weeks prior.

Larger lenders have also gotten on board and are aggressively borrowing money through three-month and one-year notes, including Punjab National Bank and Bank of Baroda. These lenders are willing to lock up money for a year at a rate of 6.60% to 6.74% in anticipation of impending policy tightening.

The repo rate for the Reserve Bank of India is now 5.40%.

Having averaged roughly Rs1.40 trillion in August, India’s banking system’s liquidity surplus has now fallen below Rs1 trillion, down from Rs1.90 trillion in July and Rs2.92 trillion in June.

Market participants also stated that banks will require a consistent supply of capital as credit expansion picks up when the economy recovers. Mutual funds have been delighted to park money in CDs at the same time, making it advantageous for both investors and issuers.