Banking News

certificates of deposits: Bank borrowing via CDs surges 50% in a year

Mumbai: Borrowing by banks has risen 50% in the past year as they struggle to keep pace with increasing demand for loans amid rising cost of deposits. The outstanding value of certificates of deposits (CD) is at ₹3 lakh crore now, up from ₹2 lakh a year ago.

Credit growth has outpaced deposits two-to-one for most banks. So, a part of the funding gap has been met via CDs.

“A wide gap in credit and deposit growth, lower liquidity and strong credit demand have been driving higher issuance of CDs,” said Sanjay Agarwal, Senior director, CARE Ratings. “Banks are keeping their CD issuance elevated to meet short-term requirements amid lower liquidity and focusing on shoring up the deposits to meet robust credit demand.”

Fund mobilisation through CD issuances was strong at ₹6.7 lakh crore during FY23, higher than ₹2.3 lakh crore in the previous year.

In the last 12 months, weighted average lending rate on fresh loans sanctioned has increased by around 181 bps while weighted average domestic term deposit has increased by around 113 bps.

Central bank data showed credit offtake rose 15.9% year on year for the fortnight ending April 21, 2023. Deposits witnessed a slower growth at 10.2% on year compared to credit for the same period.

The system Loan Deposit Ratio remains close to the average levels seen during the last decade at around 75%. Banks are now passing on the benefits of the rate hike into deposit pricing as the liability franchise gains importance due to the wide gap in credit-deposit growth.”There is still significant room for further repricing, as the spread between term deposits and repo rate remains approximately 140 bps lower than the long- term average,” said Pranav Gundlapalle, head, India financials, Bernstein. “While deposit growth rates will recover, we expect a decline in CASA ratios for banks as the higher interest rate environment drives a shift from CASA deposits to term deposits.”

For Kotak Mahindra Bank, the proportion of CASA deposits in total deposits fell to 52.8% from more than 60% a year ago. Savings account deposits also declined 4% to ₹1.09 lakh crore from ₹1.14 lakh crore a year ago.

For HDFC Bank, while time deposits grew to ₹10.47 lakh crore of the overall deposits, the proportion of CASA (current account and savings account) deposits fell to 44.4% of the total deposits as on March 2023 versus 48.2% same period last year.

For ICICI Bank, average CASA ratio fell to 43.6% in the March quarter against 45.2% a year ago. Its total CASA grew by a tepid 4.4%.

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