Certificates of deposit issuances by banks up 34% in FY24, hit Rs 9.56 trn

Amid tight liquidity conditions and sluggish growth in deposits, banks turned to mobilising funds through issuing certificates of deposit (CDs) in the financial year 2023-2024, which saw a surge of 31 per cent in CD issuance compared to the previous year.

Banks issued CDs worth Rs 9.56 trillion in FY24 against Rs 7.28 trillion in the previous financial year, according to Prime Database. However, the net amount raised was Rs 71,300 crore as banks issued short-term CDs to roll them over on maturity. The outstanding amount on CDs stood at Rs 3.04 trillion as of March 24.

Banks raised the highest amount of Rs 3.6 trillion in the last quarter of the financial year, against Rs 2.5 trillion in the third quarter. In February, the issuance of CDs reached its peak for the financial year, totalling Rs 1.49 trillion. This marked a remarkable 162 per cent increase compared to the Rs 56,795 crore raised in February 2023.

“Most of the retailers are moving to other options like equities, and debt products like mutual funds, the choice of keeping money in fixed deposits and with banks have reduced. Credit growth is 16-17 per cent. In order to meet the requirements of funds, banks are preferring to go to other options like the CD market to meet the credit demand,” said V R C Reddy, head of treasury at Karur Vysya Bank.

The top five issuers accounted for approximately 60 per cent of the total fundraising in February. These issuers were Bank of Baroda (Rs 24,155 crore), Punjab National Bank (Rs 18,650 crore), Union Bank of India (Rs 16,075 crore), Canara Bank (Rs 15,875 crore), and HDFC Bank (Rs 14,350 crore).

“The market is growing and the banks need funds. Despite the liquidity deficit, they are not increasing the fixed deposit rates. They have alternative options to raise funds, and the attention is getting divided,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. “They can raise cheaper money through CDs, that’s why issuances went up,” said Srinivasan.

Deposit growth of banks was 13.1 per cent year-on-year till March 8 (excluding the impact of the merger of HDFC with HDFC Bank) which was lower than the credit growth of 16.5 per cent.

The banking system liquidity remained in deficit mode for most part of the financial year. The Reserve Bank of India implemented an incremental cash reserve ratio (ICRR) in August which weighed on the banking system liquidity and the yield on short-term bonds surged. The RBI had mandated that with effect from the fortnight beginning August 12, scheduled banks need to maintain an ICRR of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19 and July 28.

Although the RBI’s Monetary Policy Committee kept the repo rate unchanged at 6.50 per cent in all six meetings over the year, they conducted a slew of variable rate reverse repo auctions to keep liquidity tight on the back of inflationary fears.