Banks’ certificate of deposit issuances surge 25%

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Fund mobilisation by Banks through Certificate of Deposit (CD) issuances surged 25 per cent year-on-year (y-o-y) to ₹7.89-lakh crore during the financial year so far (up to March 8), per RBI data. This comes in the backdrop of deposit growth lagging credit growth.

Banks had mopped up ₹6.33-lakh crore via CD issuances a year ago.

Banks resorted to borrowings through CD issuances to meet demand for credit, according to an article in RBI’s latest monthly bulletin.

CD is a negotiable, unsecured money market instrument issued by a bank as a usance promissory note against funds deposited at the bank for a maturity period up to one year. They are issued in minimum denomination of ₹5 lakh and in multiples of ₹5 lakh thereafter.

All scheduled banks reported credit and deposit growth of 20.10 per cent and 12.89 per cent, respectively, year-on-year as on February 23, 2024.

As on February 23, 2024, the incremental credit-deposit ratio stood at 96.9 per cent, indicating that the deposits have been able to fund credit demand at the margin, said RBI officials in the article “State of the Economy.”

“With the statutory requirements for CRR (cash reserve ratio) and SLR (statutory liquidity ratio) at 4.5 per cent and 18 per cent, respectively, around 77 per cent of deposits were available with the banking system for credit expansion as on February 23, 2024. The deposit base was supplemented by CDs issuances,” they said.

The share of term deposits offering 7 per cent and above interest rates has also increased to 61.4 per cent in December 2023 from 33.5 per cent in March 2023 and 4.5 per cent in March 2022.

This has increased the relative attractiveness of term deposits vis-à-vis savings deposits, opined the officials.

CP issuances flat

Commercial Paper (CP) issuances remained largely steady at ₹12.2-lakh crore during the financial year so far (up to February 29) from ₹12.5-lakh crore in the corresponding period last year, per the report.

Corporates, primary dealers (PDs) and all-India financial institutions (FIs) are permitted to raise short-term resources (with a minimum maturity of 7 days and a maximum of up to one year) via CPs. These instruments can be issued in denominations of Rs.5 lakh or multiples thereof.