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Banks reliance on deposits increases amid strong credit growth
November 07, 2022
Banks raised over 3.51 trillion Indian rupees($42.41 billion) through certificate of deposits (CDs)in April-October, 22% higher than the 2.87 trillion rupees raised in 2021-2022, data from Prime Database showed. Mutual funds are the biggest buyers of CDs.
“CD issuances should rise, especially now because we are entering into a busy credit season, so liquidity mismatch in the system should only increase,” said Anil Gupta, senior vice president and company group head for financial sector ratings at ICRA. In that scenario, CDs will be an important source of funds for banks.
The last few weeks have seen major state-run lenders, including Punjab National Bank, Union Bank of India and Indian Bank raising funds this way. At the same time, traders said private banks IDFC First Bank, Federal Bank and IndusInd Bank also turned frequent borrowers.
Indian banks saw a 17.95% on-year jump in credit growth for the fortnight ended Oct. 7, RBI data showed, and market participants expect the growth pace to pick up in coming months. Deposit growth lagged at 9.63% during this period.
While banks could raise deposit rates to bridge the gap, it is easier to use CDs, ICRA’s Gupta said.
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