Banks raise Rs 30,445 cr via CDs

The robust credit offtake coupled with a lag in deposit growth forced banks to take recourse to financial instruments such as certificates of deposits (CDs) in the current financial year.

The amounting of outstanding CDs by banks almost doubled to Rs 30,445 crore till December 9, 2005 from Rs 14,975 crore in early April 2005, according to the Reserve Bank of India.

The market for certificates of deposit (CDs), a short-term money market instrument, has remained buoyant during the year thus far, reflecting their cost attractiveness to banks vis-à-vis time deposits, RBI said in its third quarterly review of macroeconomic and monetary developments.

Banks' demand for funds in the wake of the acceleration in demand for bank credit. Non-food credit grew by 32 per cent on a year-on-year basis. However, time deposits grew at 14.8 per cent till early January 2006. The higher recourse to CDs was also driven by the reduction in the minimum maturity period to seven days.

Outstanding CDs were 3.0 per cent of aggregate deposits of issuing banks as on December 9, 2005, up from 2.0 per cent a year ago, it said.

The typical three-month discount rate on CDs at 6.50 per cent on December 9, 2005 was higher by about 60 basis points over its level at end-March 2005.

Mutual funds, especially liquid funds, which look for short-term financial instruments to park their corpus were key investors in CDs.