Commercial banks take CD route to narrow credit-deposit growth gap | Banking


Commercial banks mobilised Rs 1.45 trillion through certificates of deposit (CDs) in June to shore up their balance sheets ahead of the quarter end, data from the Clearing Corporation of India showed.


June mobilisation through CDs was 76 per cent higher than the previous month. In the first quarter of the current financial year, banks raised Rs 2.6 trillion through CDs, against Rs 1.6 trillion in the first quarter of the previous financial year.


Credit offtake remained healthy for the banks even as deposit growth continued to remain sluggish.


“Retail deposits are not growing, and the other way to get funds is bulk deposits and CD issuances. Here, mutual funds are the major participants who mobilise funds from retail investors and invest in CDs. Being the quarter end, banks are raising funds through CDs to shore up their liabilities,” said V R C Reddy, head of treasury at Karur Vysya Bank.


According to the latest Reserve Bank of India (RBI) data, credit growth in banks was 15.6 per cent year-on-year as of June 14, while deposit growth was 12.1 per cent, excluding the impact of the merger of HDFC and HDFC Bank.


RBI governor Shaktikanta Das highlighted the ‘persisting gap between credit and deposit growth rates’ and said it warrants a rethink by the boards of banks to re-strategise their business plans.


“A prudent balance between assets and liabilities has to be maintained,” Das had said during the June review of the monetary policy.


The credit-to-deposit ratio was 79.59 per cent at the end of May, compared to 74.90 per cent during the same period last year.


Market participants said that the fall in short-term rates post the reduction in treasury bills supply for the month of June further led to a rise in the issuances of CDs. The RBI had announced a reduction of Rs 60,000 crore in the issuance of treasury bills for the period from May 22 to June 26 of the current year.


“Banks have been struggling to raise deposits, that’s why they are looking at other options like CDs. Also, the rates had fallen due to the supply cut in treasury bills which led to more issuances. Public sector banks were the major issuers,” said a dealer at a state-owned bank.


The rates on three-month and six-month CDs fell by 14 basis points and 1 basis point, respectively, whereas that on 12-month CDs remained unchanged over the month.


According to Prime database, banks had issued CDs worth Rs 9.56 trillion in the previous financial year. However, the net amount raised was Rs 71,300 crore as banks issued short-term CDs to roll them over on maturity.

First Published: Jul 01 2024 | 6:06 PM IST


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