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Bank borrowing via CDs surges 50% in a year

May 16, 2023

Bank borrowing via CDs surges 50% in a year
Borrowing by banks has risen 50% in the past year as they struggle to keep pace with increasing demand for loans amid rising cost of deposits. The outstanding value of certificates of deposits (CD) is at ₹3 lakh crore now, up from ₹2 lakh a year ago.

Credit growth has outpaced deposits two-to-one for most banks. So, a part of the funding gap has been met via CDs.
 
“A wide gap in credit and deposit growth, lower liquidity and strong credit demand have been driving higher issuance of CDs,” said Sanjay Agarwal, Senior director, CARE Ratings. “Banks are keeping their CD issuance elevated to meet short-term requirements amid lower liquidity and focusing on shoring up the deposits to meet robust credit demand.”
 
Fund mobilisation through CD issuances was strong at ₹6.7 lakh crore during FY23, higher than ₹2.3 lakh crore in the previous year.
 
In the last 12 months, weighted average lending rate on fresh loans sanctioned has increased by around 181 bps while weighted average domestic term deposit has increased by around 113 bps.
 
Central bank data showed credit offtake rose 15.9% year on year for the fortnight ending April 21, 2023. Deposits witnessed a slower growth at 10.2% on year compared to credit for the same period.
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