State-owned banks lead in issuing CDs in FY25 to mop up deposits

CDs

To mop up deposits and meet funding requirement in a tight liquidity environment, banks stepped up issuances of certificates of deposit (CD) in the financial year 2024-25, which ended March 31.

Of the Rs 1.15 lakh crore worth of CDs issued in FY25, around 62 percent were by state-owned banks, Clearing Corporation of India (CCIL) data shows. Private lenders accounted for 29 percent of the CDs.

Small finance banks and institutions such as the National Bank for Agriculture and Rural Development (NABARD) and the Small Industries Development Bank of India (SIDBI) accounted for the remaining.

Among the state-owned banks, Punjab National Bank raised Rs 2.16 lakh crore during the year, Bank of Baroda Rs 1.54 lakh crore, Canara Bank Rs 1.25 lakh crore and Union Bank of India Rs 96,125 crore, data shows.

HDFC Bank, which raised Rs 1.56 lakh crore, was the only private bank among the top five CD issuers of FY25.

Banks struggled as deposit growth lagged credit growth. The widening gap creates an asset-liability mismatch. The gap worried the government and the Reserve Bank of India (RBI) which asked banks to focus more on deposit mobilisation.

Banks also stepped up CD issuances due to deficit liquidity prevailing since mid-December 2024. Instead of redemption of maturities, which were due, banks opted to roll over CDs, leading to higher issuances.

In its March bulletin, the RBI said banks continued to rely on CDs to meet funding requirements.

The money market continues to face stress due to persistent negative system liquidity, driving a surge in short-term funding needs to meet year-end credit demand.

Liquidity has been under stress in the last few months due to slower government spending, interventions in the foreign exchange market by the RBI and heavy selling by foreign portfolio investors in Indian equities, the RBI said.

Banks have been aggressively issuing CDs since December. Average total issuances in a month have remained in the range of Rs 1 lakh crore-Rs 2.2 lakh crore.

To support liquidity, the central bank has conducted various daily variable rate repo (VRR) auction, normal or long tenure VRR auction, open market operations (OMO) purchases of government securities and USD/INR Buy/sell swap auction.

These measures helped liquidity situation in the last week of the financial year, with shortfall of just Rs 13,000 crore.