Banks cut CD borrowings by Rs 1.3 lakh crore in a month amid RBI liquidity boost

Mumbai: Indian banks have run down more than ₹1.3 lakh crore of certificates of deposit (CDs) in just a month, shrinking outstanding short-term market borrowings by 19% as liquidity created by the Reserve Bank of India's special foreign currency non-resident (bank) deposit window reduced their need for relatively expensive wholesale funding.

Outstanding CDs fell to ₹5.60 lakh crore as of September 15 from about ₹6.90 lakh crore in mid-August, a decline of ₹1.306 lakh crore, according to RBI data. In the latest fortnight alone, outstanding CDs dropped by ₹76,400 crore, while year-on-year growth slowed sharply to 11.5% from 28.4% at the end of August.

The retreat from CDs follows a surge in banking-system liquidity after banks raised foreign currency deposits under the FCNR (B) swap window. System liquidity peaked at around ₹11.2 lakh crore in early September, as banks exchanged dollars raised overseas with the RBI for rupees. The surplus reduced the need to tap short-term wholesale funding and allowed banks to let maturing CDs run off.

said Vineet Jain, senior director, BFSI, Care Ratings.

This cost advantage is unlikely to last. Short-term rates have already begun to rise as the market prices in a possible rate hike at the October review. The RBI has also started to absorb the extra cash by selling government bonds. The easing in funding pressure is showing up in pricing as well. While fresh CD issuance recovered to ₹39,900 crore from ₹19,500 crore in the previous period, the lower end of issuance rates fell to 5.57% from 6.24%. The upper end remained broadly unchanged at 7.18%, widening the spread between issuers.

said Prateek Ancha of Axis Securities.A basis point is a hundredth of a percentage point. The shift is playing out differently for borrowers,

said Prakash Agarwal, partner, Geofin Capital.