Banks Increase CD Issuances Amid Sluggish Deposit Growth in September

Banks Increase CD Issuances Amid Sluggish Deposit Growth in September

In response to slow deposit growth, banks ramped up the issuance of certificates of deposit (CDs) in September, raising Rs 1.35 trillion, a 65% jump from August. This marks the second-highest monthly CD issuance in the current fiscal year, only behind June’s Rs 1.45 trillion.

Banks are expected to face continued pressure to raise deposits in the upcoming October-December quarter, driven by heightened competition for deposits and upcoming Reserve Bank of India (RBI) guidelines on the liquidity coverage ratio (LCR). These guidelines will likely boost demand for high-quality liquid assets (HQLA), specifically statutory liquidity ratio (SLR) investments. Banks will rely on a mix of deposits and borrowings to fund these investments.

A private bank treasury head explained that banks are competing for deposits, which is driving up costs. With the RBI urging banks to lower the credit-deposit ratio (CDR), additional funding through CDs, bulk deposits, or retail deposits is anticipated.

In the current financial year, banks have already raised Rs 5.4 trillion through CDs, a 67% increase compared to the same period last year. Canara Bank led the issuances, raising Rs 68,250 crore, followed by Bank of Baroda and HDFC Bank. State-owned banks contributed significantly to this total, accounting for 68% of the amount raised.

The majority of issuances in September were for three-month CDs, which made up 72% of the total. The higher rates on term deposits are attracting retail deposits, while CDs offer banks the flexibility to quickly raise large amounts of funds.

Despite higher rates on CDs and term deposits, the pressure on banks to secure funds will likely persist, as retail investors continue to favor equities and mutual funds. CD rates for three-month and six-month tenors have already increased by 2 basis points in September, with expectations that rates will remain elevated as credit growth continues to outpace deposit growth.