Banks leaned more on short-term debt for funding needs this fiscal
certificates of deposits (CDs) jumped 69% on-year to ₹5.58 lakh crore in FY25 up to October 4, as lenders turned to short-term debt instruments for their funding needs instead of raising deposit rates and facing pressure on net interest margins. In its October bulletin, the Reserve Bank of India (RBI) said primary market issuances of CDs by banks were at ₹5.58 lakh crore from April 1 to October 4. The RBI noted that banks preferred to bridge a funding gap through short-term debt instruments «rather than raising deposit rates.»
Banks have faced pressure to mobilise funds through various avenues over the past couple of years as credit growth has outpaced deposit growth, although the extent of the wedge between the two has narrowed over the last couple of months. As on October 4, bank credit growth was at 14.1% year-on-year, while deposit growth was at 12.2% over the same period, RBI data showed.
Meanwhile, issuances of commercial papers (CPs) by companies were at ₹8 lakh crore during FY25 up to October 15, higher than ₹7.34 lakh crore in the same time a year ago, the RBI said.
The central bank noted that its decision to raise risk weights on bank loans to non-banking financial companies (NBFCs) had led to an increase in CP issuances by such firms as they diversified their sources of funding.
In November 2023, the RBI announced an increase in risk weights on loans given by banks to NBFCs by 25 percentage points in all cases where risk weights as per external ratings of NBFCs were below 100% Analysts said that a
