Certificate of deposit (CD) issuances grew by more than 65 per cent (year-on-year/yoy) to ₹4.51 lakh crore during 2024-25 (up to September 6), significantly higher than ₹2.72 lakh crore in the corresponding period of the previous year to meet funding requirements of banks to bridge the gap between credit and deposit growth.

“In the credit market, with deposit mobilisation becoming a challenge, banks continue to rely heavily on certificates of deposit to meet funding needs so that lagging deposit growth does not constrain credit,” said RBI officials in an article ‘State of the Economy’ in the latest monthly bulletin.

Banks are also offering higher interest rates on deposits, with more than two-thirds of term deposits earning 7 per cent and above. The share of term deposits offering interest rates over 7 per cent increased to 66.9 per cent in June 2024, from 33.5 per cent in March 2023 and 4.5 per cent in March 2022.

Credit-deposit ratio

“The gap between credit and deposit growth is, however, beginning to narrow. Non-banking financial companies are increasingly turning to offshore bonds. Microfinance institutions are facing some asset quality issues, warranting slowing down the pace of loan growth,” the officials said.

They noted that scheduled commercial banks’ incremental credit-deposit ratio declined from 95.8 as at end-March 2024 to 95.3 as on September 6, 2024

With the statutory requirements for cash reserve ratio (CRR) and statutory liquidity ratio (SLR) at 4.5 per cent and 18 per cent, respectively, around 77 per cent of deposits were available with the banking system for credit expansion as on September 6, 2024.

Non-resident deposits recorded net inflows of $5.8 billion during April-July 2024 compared with $3.0 billion a year ago, with higher inflows in all three accounts namely, non-resident (external) rupee accounts [NR(E)RA], non-resident ordinary (NRO) and foreign currency non-resident [FCNR(B)] accounts.

Commercial Paper issuances increased to ₹6.28 lakh crore during 2024-25 (up to August 31), higher than ₹5.88 lakh crore in the corresponding period of the previous year, the officials said. With the Reserve Bank increasing risk weights on bank loans to NBFCs, CP issuances by NBFCs increased as they diversified their funding sources beyond banks.

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