Bank Issuance of Certificates of Deposit Rises 66 Percent in First Half of FY25 Amid Sluggish Deposit Growth

Bank Issuance of Certificates of Deposit Rises 66 Percent in First Half of FY25 Amid Sluggish Deposit Growth

The issuance of certificates of deposit (CDs) by banks has surged by 66% in the first six months of FY25, as lenders grapple with sluggish deposit growth while trying to meet rising credit demand. Data from Primedatabase reveals that banks raised Rs 5.59 lakh crore through CDs between April and September, compared to Rs 3.37 lakh crore in the same period last year. In September alone, banks raised Rs 1.45 lakh crore, marking a 77% increase from Rs 82,020 crore raised in August.

The increase in CD issuances coincides with the start of the festive season, which has led to a sharp rise in credit demand. A public sector bank’s head of treasury commented that the banking system faced a liquidity deficit in the second half of September, prompting the rise in CD issuances to bridge the gap between assets and liabilities.

In the second quarter of FY25, banks raised Rs 2.95 lakh crore through CDs, up from Rs 1.77 lakh crore in the same period of FY24, representing a 67% growth. Certificates of deposit are short-term debt instruments used by banks to raise funds. The banking system witnessed a liquidity deficit towards the end of September, driven by outflows related to quarterly advance tax payments and goods and services tax (GST). On September 17, the system faced a deficit of nearly Rs 5,000 crore, while on September 18, the deficit was Rs 2,600 crore. This was a sharp turnaround from the liquidity surplus of Rs 1.35 lakh crore seen on September 15.

Soumyajit Niyogi, Director of Core Analytical Group at India Ratings and Research, explained that CD issuances increased towards the end of the quarter, adding to banks' deposit balances. Public sector banks saw a significant rise in CD issuances, while private banks also showed healthy growth. The Reserve Bank of India reported that credit growth stood at 13.6% year-on-year as of August 23, while deposit growth lagged at 10.8%.

With the festive season continuing into the second half of the fiscal year, bankers expect CD issuances to remain robust as credit demand is likely to stay strong.