CD outstanding declines to six-and-a-half year lows

By: | Published: December 3, 2015 1:22 AM

Certificates of deposits (CD) — or inter-bank loans — are no longer in demand with the outstanding paper having dropped to six-and-a-half-year lows, according to data from the Reserve Bank of India.

Certificates of deposits (CD) — or inter-bank loans — are no longer in demand with the outstanding paper having dropped to six-and-a-half-year lows, according to data from the Reserve Bank of India.

RBI data shows that CD outstanding as on November 13 stood at R1.81 lakh crore, the lowest since March 2009.
Data also indicates that in the fortnight-ended November 13, banks had issued CDs worth R14,311 crore.
With demand for credit poor, banks have more than adequate funds and are therefore, not borrowing too much in the inter-bank market.

Non-food credit has been growing at a subdued pace of close to 10% ; the outstanding non-food credit at the end of November 13 was R67.29 lakh crore. Deposits have been growing at a slightly higher pace. The outstanding deposits in the system as on November 13 stood at R91.02 lakh crore.

Ashutosh Khajuria, executive director at Federal bank attributes the fall in CD issuances to the comparatively better deposit growth. “Banks do not need bulk resources as of now because credit growth in the system is low. As a result of that, there is no pressure on the banks to raise funds through CDs,” Khajuria said.

Deposit growth in the fortnight-ended November 13 stood at 10.99% against the non-food credit growth of 9.98% compared to the same period last year.

Khajuria also pointed out that a few years back, the ministry had issued an advisory to public sector banks to increase their share of retail deposits. “So public sector banks are gradually shedding their bulk deposits and CDs and going towards more mobilisation of retail deposits,” he added.

Mutual funds, which subscribe to both CDs and commercial paper (CP) are now investing more in CP. As of mid-November, CP outstanding stood at a record high of R3.44 lakh crore with the fortnightly issuance amounting to R70,153 crore. This was the third time that fortnightly CP issuances crossed the R70,000 crore mark after having hit this level in June and October this year.

Corporates are also finding it cheaper to borrow in the money market rather than from banks for their short-term needs. A two-three month CP yields around 7.7% compared to the 9.30% base rate that is lowest in the banking system.

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