Context:
A recent RBI Bulletin highlights a significant realignment in India’s Certificate of Deposit (CD) market. Between 2022 and December 2024, the share of public sector banks (PSBs) in CD issuances surged from 6% to 69%, while private sector banks (PVBs) saw a decline from 85% to 30%.
Key Drivers of CD Issuance Surge
- Tight Liquidity and Strong Credit Growth:
- The banking sector saw credit growth outpacing deposit mobilisation, forcing banks to raise short-term funds via CDs.
- Liquidity deficit and year-end funding pressures led to a record ₹3.70 trillion in CD issuances in Q4FY25.
- Mutual Funds as Dominant Buyers:
- Mutual funds, buoyed by retail participation in equity markets, have remained the primary investors in CDs, facilitating larger allocation toward money market instruments.
- Rising Overall Market Volume:
- Outstanding CD issuances hit a record ₹11.75 trillion in FY25, reflecting continued demand.
- Issuance volumes climbed steadily since April 2022, peaking in March 2025 at ₹1.17 trillion, amid fiscal year-end liquidity pressures.
What is a Certificate of Deposit?
A Certificate of Deposit (CD) is a time deposit offered by banks and credit unions. Unlike regular savings accounts, CDs require the depositor to keep their money in the account for a fixed period in exchange for a higher interest rate. The term of a CD can range from a few months to several years, and the interest rate is usually higher than that of a standard savings account.
Who Issues CDs?
CDs are issued by:
- Banks (both commercial and online banks)
- Credit unions
- Brokerage firms (offering brokered CDs from partner banks)
These financial institutions use CDs to attract deposits, which they can then use for lending and other investment activities.
