RBI Bulletin | Lagging deposit growth push banks to raise huge funds from CDs

Reserve Bank of India

The lagging growth in deposits in relation to credit growth has pushed banks to rely on alternative source of funding such certificates of deposit, according to the Reserve Bank of India’s (RBI) latest monthly bulletin on August 19.

In the primary market, CD issuances amounted to Rs 3.49 lakh crore during 2024-25 (up to August 9), significantly higher than Rs 1.89 lakh crore in the corresponding period of the previous year, bulletin said.

“This increase can be attributed to deposit growth lagging credit growth, prompting banks to rely on alternative sources of funding,” the RBI bulletin said.

Last month, RBI Governor Shaktikanta Das, in an event in Mumbai, raised concerns over the widening gap between credit and deposit growth saying it will expose the system to structural liquidity issues.

Das further said that there could be a debate regarding ‘deposits funding loans’ vis-à-vis ‘loans funding deposits’, the current regulatory concern stems from the fact that there could be structural changes happening which banks need to recognise and, accordingly, devise their strategies.

Scheduled commercial banks’ (SCBs’) credit growth stood at 15.1 per cent as on July 26, 2024. As on July 26, 2024, SCBs’ incremental credit-deposit ratio was at 102.4 percent, bulletin said.

CP issuances also increased to Rs 4.86 lakh crore during 2024-25 (up to July 31), surpassing Rs 4.72 lakh crore in the corresponding period of the previous year, driven by NBFCs’ higher borrowings in the CP market.