Banks stick to certificates of deposits to keep lending
certificates of deposit (CD) to finance demand for credit, as mobilising traditional deposits remains a challenge. Funds raised by issuing these typically short-term financial instruments grew 57% till November 15 this fiscal year to more than ₹6 lakh crore, compared with around ₹3.9 lakh crore a year earlier, according to Reserve Bank of India data.
Outstanding CDs at the end of November 15 totalled ₹4.89 lakh crore. In the first 15 days of November, banks issued CDs worth ₹46,552 crore.
«This increase is to meet banks' funding requirements to manage the gap between the credit offtake and deposit growth,» said Saurabh Bhalerao, associate director-BFSI research at CARE Ratings.
Credit has been growing much faster than deposits for several quarters, forcing banks to tap various avenues including CDs to raise money to meet their fund demand. But the gap in growth rates has now narrowed, helping soften the weighted average effective interest rate on CDs to 7.34% from 7.39% a year ago, Bhalerao said.
Data from domestic rating agency India Ratings show public sector banks issued ₹37,700 crore of CDs in the first 20 days of November compared with ₹42,800 crore during October 1-31. CD issuances by private banks in this period, meanwhile, rose to ₹19,100 crore from ₹16,900 crore in October.
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