Banks to rely on certificates of deposit to fund credit demand: Officials | Banking
 "Pressure on net interest margin (NIM) may soon force commercial banks to align loan growth more closely with deposit growth, stated the Reserve Bank of India's (RBI) latest State of the Economy Bulletin.")
In India, retail sales peak during October-December, when the nation of 1.4 billion celebrates major festivals | Representative Picture
Indian banks are set to issue more certificates of deposit to meet year-end loan demand as deposit mobilisation remains challenging, six bankers said.
Certificates of deposit (CDs) are debt instruments with maturities of less than one year issued by banks.
“With the bulk deposit space becoming increasingly competitive, banks will be looking to issue more CDs to meet the rising credit demand ahead of the festive season,” a senior treasury official at a mid-sized private sector lender said.
In India, retail sales peak during October-December, when the nation of 1.4 billion celebrates major festivals.
The stock of outstanding CDs rose to a record high of Rs 5.15 trillion (about $61 billion) at the end of August. Since then, banks have issued more than Rs 1 trillion of these notes, clearing house data showed.
Loans given by Indian banks have been growing at double-digit percentages since April 2022, boosted by a spike in consumer spending, but the rise in deposits has lagged. Banks’ loans grew 13.3 per cent year-on-year in the fortnight to Sept. 6, while deposits rose by 11.1 per cent.
“Garnering retail deposits typically incurs additional cost through marketing spends, especially in such a competitive market, which is why we would prefer CD route for some time,” a banker said, citing “healthy” demand from mutual funds.
Banks’ reliance on these short-term notes is likely to persist despite the central bank urging them to garner more long-term funds to minimise potential asset-liability mismatches and spur financial inclusion, a separate source aware of the central bank’s thinking said.
The bankers and the source requested to not be named as they are not authorised to speak to the media.
The Reserve Bank of India did not immediately reply to a Reuters email seeking comment.
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First Published: Sep 24 2024 | 2:17 PM IST
