Faced with a strong recovery in loan growth, banks are vying for deposits and the competition is intense. The rush to get deposits is first visible in the wholesale market where bulk deposits begin to increase.
Indeed, the issuance of certificates of deposits has risen steadily over the past three months, as reflected in the chart.
The outstanding pile of CDs has more than doubled in just six months to Rs 1.9 lakh crore as of June 3. To be sure, a big jump was seen during March that can be attributed to financial year-end adjustments by banks. The pace of issuance has increased since May.
Note that this increase is despite short-term rates surging more than 100 basis points during the same period. Banks are willing to pay higher rates to get wholesale deposits as surplus liquidity is beginning to reduce. The pace is likely to increase in the coming months as liquidity surplus continues to come down with mid-sized and smaller private sector banks leading the issuances.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
