CD is one of the instruments which banks and financial institutions use to raise cheap bulk funds from corporates and high networth individuals. IDBI chief executive officer, commercial banking, GV Nageswara Rao told FE, CDs have definitely emerged as an attractive option for banks. There is a high demand from mutual funds to invest in these instruments, given that they are not permitted to invest in fixed deposits.
Dipak Gupta, executive director, Kotak Mahindra Bank, said the prevailing rates of CDs were cheaper than banks fixed deposits. Hence, banks are increasingly tapping this route, he said. Fitch Ratings senior director, Ananda Bhoumik said, With increased credit offtake, banks are keen to raise cheap funds. CDs have enabled them to diversify their fund-raising avenues.
Similarly, short-term funds through commercial paper availed by companies increased by 68% to Rs 2,32,384.57 crore in April-October this fiscal. Mr Bhoumik said, the increased demand for CPs has funded the robust growth in the manufacturing sector.
The banking industrys non-food credit had grown 32% as of October 14, on top of a 30.1% increase a year ago. Incremental non-food credit till October 14 over the last reporting Friday of March 2005, was Rs 1,77,753 crore, higher than the Rs 1,31,444 crore increase in the same period of 2004.