Banks turn to bulk deposits to meet credit demand on tepid retail FDs
bulk deposit market aggressively in the last few months, resulting in the outstanding certificates of deposit (CDs) in the banking system rising to a decadal high.
Reserve Bank of India (RBI) data show that outstanding CDs in the banking system rose to ₹3.81 lakh crore — the highest since April 2014. These deposits are also not coming cheap as interest rates on these instruments have risen to a maximum of 8.22% which is also the highest since May 2019.
In a report released on Monday, Nomura analysts pointed out that in February 2024, the monthly issuance of CDs for the banking system at ₹1.3 lakh crore was at a five-year high. «While CDs are a very small part of system deposits (2% of system deposits as of February 2024), the sharp rise in issuance is indicative of a continued resource crunch faced by banks. Borrowing costs via CDs are around 50 to 80 basis points more expensive compared to retail term deposits, with current 12-month CD rates being at 7.8% on an average across banks,» the analysts said. One basis point is 0.01 percentage point.
Indian banks' aggregate loan-to-deposit ratio (LDR) reached a two-decade high of 80% as bank loan growth outpaced deposit growth. In a report on Tuesday, S&P Global Market Intelligence said bank net interest margins (NIMs) will be pressured as lenders compete for deposits, driving up their funding costs. «The systemwide net interest margins are expected to slip to 2.9% in the fiscal year ending March 31, 2025, from 3% in the current fiscal year,» the S&P arm said.
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