Are Banks Increasing Funds via CDs to Boost Credit Operations?
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Synopsis
Indian banks are ramping up their borrowing through Certificates of Deposit, driven by strong loan demand outpacing deposit growth. This trend reflects the increasing need for alternative funding sources as credit growth continues to soar. Dive into the details of how this impacts the banking landscape and what it means for the economy.
Key Takeaways
- Indian banks are borrowing heavily via CDs.
- Credit demand is outpacing deposit growth.
- The credit-deposit ratio has exceeded 80%.
- Market borrowings are essential for liquidity.
- CDs are a cost-effective funding alternative.
Mumbai, Nov 23 (NationPress) Indian financial institutions have markedly escalated their borrowing through Certificates of Deposit (CDs), reaching almost Rs 55,000 crore in the two weeks ending November 14, marking the highest level since mid-September, as per data from the Reserve Bank of India (RBI).
This increase is spurred by robust credit (loan) demand that consistently surpasses deposit growth within the banking sector.
The volume of CD issuances in the first half of November 2025 was twice that of the prior two fortnights.
The credit-deposit ratio of the banking system has surpassed the 80 percent mark for the first time, reaching 80.47 percent by October 31, 2025.
This signals that banks are loaning out a significant portion of their deposits and are in need of alternative funding mechanisms.
To meet the ongoing demand for loans, banks are increasingly depending on market borrowings such as CDs, especially as deposit growth remains in the single digits while credit growth is robust, driven by the expanding economy.
The rise in CD borrowing was partially influenced by a dip in short-term borrowing rates after the RBI set lower-than-anticipated cut-off yields at a recent treasury-bill auction, making CD issuances more appealing, according to market insiders.
Funds collected through CDs surged as borrowing rates declined following the RBI's lower-than-expected cut-off yields during its weekly treasury-bill auction, prompting banks to enhance their issuance of CDs.
The RBI established the cut-off for the 91-day T-bill at 5.38 percent, which fell short of market expectations, analysts noted.
A healthy demand for CDs from mutual funds has also bolstered banks' capacity to issue these instruments.
Market analysts predict that banks will continue to depend on CDs to satisfy year-end credit demand, especially during the festive season when retail sales peak.
CDs are negotiable money market instruments issued by banks with maturities ranging from a minimum of seven days to a maximum of one year.
These instruments represent a cost-effective alternative to bulk term deposits, contributing to the total deposit pool of banks.
Additionally, they aid banks in replenishing maturing deposits, ensuring more effective liquidity management, which reinforces their reliance on such instruments.
Point of View
It is essential to recognize that the current uptick in Certificates of Deposit borrowing by banks indicates a significant shift in financial strategies amidst robust credit demand. This trend deserves our attention as it signals the need for adaptive measures in banking operations and potential implications for the broader economy.
NationPress
23/11/2025
Frequently Asked Questions
What are Certificates of Deposit?
Certificates of Deposit (CDs) are negotiable money market instruments issued by banks, typically with maturities ranging from seven days to one year. They serve as a cost-effective alternative to traditional deposits.
Why are banks increasing their reliance on CDs?
Banks are turning to CDs to meet the growing demand for loans as deposit growth remains stagnant. This provides them with a necessary funding source to support their lending operations.
How does the RBI influence CD rates?
The Reserve Bank of India (RBI) influences CD rates through its monetary policy decisions, including setting cut-off yields at treasury-bill auctions, which can make CDs more attractive to banks.
What is the impact of a high credit-deposit ratio?
A high credit-deposit ratio indicates that banks are lending a significant portion of their deposits, which may necessitate alternative funding sources like CDs to maintain liquidity.
What does the demand for CDs indicate about the economy?
The rising demand for CDs suggests strong loan demand driven by economic growth, highlighting the banking sector's need to adapt to changing financial landscapes.
