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Indian banks issue more CDs to secure cheap funding

August 24, 2022

Indian banks issue more CDs to secure cheap funding
Indian banks have increased their fundraising activity through the issuance of certificates of deposits, as funding in the banking system continues to contract, analysts said.

“Banks are not raising deposit rates, as they are able to get funds easily from money market by issuing CDs, and that too cheaply, and they may continue to opt for this route of fundraising for next few weeks,” said Raju Sharma, head of fixed income at IDBI Mutual Fund.

Indian private and state-run banks have raised around 300 billion rupees ($3.76 billion) through two-month to one-year CDs in the two weeks to Aug. 19, sharply higher than the roughly 50 billion rupees in the previous two weeks, data compiled by Reuters showed.

Larger lenders, such as Punjab National Bank and Bank of Baroda, have also jumped the bandwagon and are actively borrowing funds through three-month and one-year notes. These lenders are paying around 6.60%-6.74% for one-year funds, and keen to tie up funds for a year in anticipation of policy tightening in the near future.

The Reserve Bank of India’s repo rate stands at 5.40%.

India’s banking system liquidity surplus has dropped below one trillion rupees, and has averaged around 1.40 trillion rupees in August, falling further from 1.90 trillion rupees in July and 2.92 trillion rupees in June.

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