Banks have reduced their borrowings by way of Certificate of Deposits (CDs) after the finance ministry issued norms that required banks to reduce the proportion of bulk deposits and CDs to 15% of the total deposits by March 31, 2013. The norms were issued earlier this year.
The total amount outstanding on CDs by commercial banks stood at Rs 3,57,190 crore for the fortnight ending September 21 compared with Rs 3,83,472 crore for the fortnight ending September 23, 2011, shows Reserve Bank of India (RBI) data.
CDs are promissory notes issued by commercial banks. They are time deposits that restricts holders from withdrawing funds on demand and are short-term instruments.
“We have reduced our exposure to CDs and we believe this will help in improving our Net Interest Margin (NIM) in the time to come,” said an official at Union Bank of India. The bank's CD outstanding is currently at about Rs 2,500 crore compared with about Rs 5,200 crore at the end of March 31.
But according to market experts, the other reason for reducing the exposure is because credit offtake has been sluggish this fiscal due to which banks are not raising funds aggressively.
