Banks cut CD borrowings by Rs 1.3 lakh crore in a month amid RBI liquidity boost
Indian banks have substantially reduced their reliance on Certificates of Deposit (CDs), a tradable, fixed-term deposit issued by banks, cutting outstanding amounts by ₹1.3 lakh crore in just one month. This reduction follows a significant boost in liquidity provided by the Reserve Bank of India's foreign currency deposit scheme. Consequently, the need for short-term funding has decreased, leading to lower call rates, and CD rates have also fallen notably.
What this means
The sharp decline in CD borrowings signals a more comfortable liquidity position for banks, largely thanks to the RBI's measures. With ample funds available, banks have less need to raise expensive short-term capital through CDs, which in turn drives down interest rates in the money market. This development could lead to lower funding costs for banks, potentially influencing their lending rates. For investors, the falling CD rates mean lower returns on these instruments. Monitor market liquidity closely, as it directly impacts banks' funding strategies and overall interest rate dynamics.
Most affected: Bank treasuries, Money markets
Key takeaway: Assess the impact of improved systemic liquidity on your bank's funding costs and investment opportunities, especially in short-term instruments.
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