For the first time in over a decade, the certificate of deposit (CD) volume outstanding declined below the Rs 1-trillion-mark to Rs 82,400 crore as of September 15 this year from a whopping Rs 2.04 trillion a year ago, according to industry data.
The year-on-year credit growth as of September 15 stood lower at 7.5 per cent as against a deposit growth of 10 per cent. As a result, the CD outstanding declined to Rs 82,400 crore from Rs 2.04 trillion as of September 16, 2016, domestic rating agency Icra said in a note today.
The agency also warned that a pick-up is unlikely as there is more liquidity with system after the Reserve Bank lowered the SLR to 19.5 per cent in the October policy.
"With weak credit growth for banks and surge in deposit base post-note-ban, banks' reliance on borrowing through CDs has been gradually declining.
"With recent reduction in statutory liquidity ratio from 20 to 19.5 per cent and expectations of 7-8 per cent bank credit growth, the CD volumes are expected to remain subdued," said Karthik Srinivasan, group head--financial sector ratings at Icra.
The certificate of deposit volumes had peaked at around Rs 4.5 trillion during the period between March 2011 and September 2012 since then it has been falling gradually.
Due to the twin balancesheet crisis in the economy - of overleveraged companies and bleeding banks due to non- payment of dues by the corporate borrowers - banks since the past few years were shying away from lending to debt-laden corporate.
This has been leading to a steady decline in bank credit. Another reason for low bank credit growth was the dependence of India Inc on the money market and debt/bond market where the funds were cheaper and also easy to mop up.
As a result bank credit for fiscal 2017 declined to a six decades low of 5.08 per cent, which was the lowest since fiscal 1953 when it had stood at 1.8 per cent.
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