Primary market issuances of Certificate of Deposits (CDs) by banks rose 34 per cent year-on-year (y-o-y) to reach an all-time high of ₹10.58 lakh crore during FY2024-25 (up to March 7, 2025) as against ₹7.89 lakh crore recorded in the year-ago period amid persisting gap in credit and deposit growth, according to RBI’s latest monthly bulletin.
Credit growth outpacing deposit growth is underscored by the fact that scheduled commercial banks’ (SCBs’) credit and deposit growth stood at 12 per cent and 10.6 per cent, respectively, as of February 21, 2025.
In view of the gap between credit and deposit growth, SCBs’ incremental credit-deposit ratio increased from 80.7 per cent as on October-end, 2024, to 88.2 per cent as on February 21, 2025, per the bulletin.
Liquidity remains tight
Banks continue to rely on CDs to meet their funding requirements on account of the persisting gap in credit and deposit growth, RBI staffers said in an article ‘State of the Economy’ in the bulletin.
A CD is a negotiable money market instrument issued by SCBs and select all-India Financial Institutions (FIs) to raise short-term resources for up to one year.
Even as CD issuances touched an all-time high, their coupon rates have nudged up as the current financial year (FY25) nears end. This, despite the February 7 repo rate cut, as liquidity remains tight in the banking system and deposit growth continues to lag behind credit growth.
Lending rates
Usually, the pass-through of a repo rate cut is quick in the case of short-term money market instruments like CDs. But this has not happened this time as the 25-basis-point rate cut came closer to the end of the financial year, when demand for funds by banks is traditionally high.
Moreover, persistent liquidity deficit despite RBI conducting liquidity injection operations is keeping CD rates slightly higher even as bank term deposit rates continue to be sticky.
For example, three-month CD rates have gone up by about 17 basis points in the last one-and-a-half months from 7.47 per cent as on February 3, 2025, to 7.64 per cent as on March 18, 2025.
The tight liquidity situation has arisen due to RBI’s foreign exchange market interventions to curb excessive volatility in the Rupee’s movement against the Dollar, government tax flow dynamics, currency leakages and foreign portfolio investor (FPI) outflows.
