Credit offtake spawns spurt in CD issuances

High credit off-take versus slow growth in bank deposits has led to a rise in issuance of certificate of deposits by banks ahead of the financial year end in March to bridge this gap.

As several banks look to present a larger balance sheet size every year, the liabilities side is being augmented by CDs as public deposits have been hard to come by, dealers said.

"Quite a few reasons are acting cumulatively," said Ashwini Kumar, a dealer at UCO Bank.

"The high credit off-take and the maturity of CDs placed earlier have triggered CD placements by banks," he said.

"Due to tight liquidity, it is difficult for banks to redeem the CDs maturing in March. CD issuance is high right now also as banks are rolling over their maturity by fresh placements," Kumar added.

"At every quarter-end, we see a spurt of CD issuance. It helps them improve their balance-sheet picture," a dealer at a brokerage house said.

UCO Bank, Allahabad Bank, State Bank of Indore, ICICI Bank, and UTI Bank are a few that have issued CDs in recent days. More banks could be tapping the market in the near-term, dealers said.

Slow deposit growth coupled with mutual fund demand for short-term assets has prompted banks to increasingly opt for CDs this year.

As per the weekly statistical supplement of the Reserve Bank of India, the outstanding CD issuance as on Jan. 6 was 344.32 billion rupees, up roughly 400% from 70.33 billion rupees a year earlier.

From Apr. 1 to Feb. 3, bank credit has grown by 25%, while deposits have only grown by 16%.