Source: BS Why in News? Investors are increasingly shifting from Commercial Papers (CPs) to Certificates of Deposit (CDs) due to higher CD issuances, better yields, and lower perceived credit risk. Key Trend Commercial Papers (CPs) vs Certificates of Deposit (CDs) Basis Commercial Paper (CP) Certificate of Deposit (CD) Definition Short-term unsecured promissory note issued for working capital needs Short-term negotiable time deposit issued to raise funds Issuer Corporates, financial institutions, NBFCs Banks and select financial institutions Nature of Instrument Unsecured debt Bank deposit instrument Purpose Corporate short-term financing Bank short-term liquidity management Credit Risk Higher (depends on corporate creditworthiness) Lower (issued by regulated banks) Return / Yield Generally higher to compensate for higher risk Usually slightly lower but currently rising due to demand Liquidity Tradable but relatively less liquid More liquid and widely traded Investor Base Mutual funds, banks, institutions, corporates Mutual funds, banks, institutions, corporates Regulation Regulated by RBI guidelines for money market instruments Regulated by RBI banking and money market norms Typical Maturity 7 days to 1 year 7 days to 1 year (banks) Collateral Requirement No collateral (unsecured) Backed by bank’s financial strength Risk Perception Sensitive to corporate financial health Considered safer due to bank backing Market Trend (Recent) Issuances declining Issuances rising Main Reason for Current Shift Higher perceived risk, competitive bank lending Higher yields, better liquidity, strong bank demand Economic Indicator Reflects corporate borrowing conditions Reflects banking system liquidity needs Why Investors Are Shifting from CPs to CDs Factor Explanation Impact on Market Higher Yields Rising interest rates on CDs have made them more attractive than CPs. Investors shift funds toward CDs for better returns. Lower Credit Risk CDs are issued by banks, which are perceived safer than corporate issuers of CPs. Preference for risk-adjusted returns increases demand for CDs. Greater Liquidity CDs are more easily tradable in secondary markets. Investors prefer CDs for flexibility and easier exit. Higher Bank Issuances Banks are issuing more CDs to meet funding needs. Increased supply boosts CD market share. Why Banks Are Issuing More Certificates of Deposit (CDs) Driver Explanation Effect Credit–Deposit Gap Loan demand growing faster than deposit growth. Banks raise short-term funds via CDs. Credit Growth Around 13.1% year-on-year growth. Higher funding requirement for lending. Deposit Growth Around 10.6% year-on-year growth. Insufficient deposit mobilisation. Deposit Tightness Weak retail deposit growth and intense competition for deposits. Banks rely more on market borrowing (CDs). Liquidity & Monetary Conditions RBI liquidity measures influence short-term interest rates. CDs become flexible and responsive funding tool.

Source: ET Why in News? The Reserve Bank of India (RBI) has restored the use of Default Loss Guarantees (DLGs) for Non-Banking Financial Companies (NBFCs), reversing earlier restrictions that increased provisioning requirements for loans sourced through fintech partnerships. What Is the Decision? Background — Earlier RBI Rule (2025) Impact: What Are Default Loss Guarantees (DLGs)? A DLG is a risk-sharing arrangement in digital lending: Purpose → Reduce lender risk and enable credit expansion.

Source: ET Why in News? The Reserve Bank of India (RBI) has begun consultations with banks to review and simplify overseas investment rules, following industry concerns over procedural hurdles and regulatory ambiguities. What Is the Development? This has raised expectations of policy changes to facilitate outbound investment by Indian entities and individuals. Current Overseas Investment Framework Overseas Direct Investment (ODI) Limits An Indian company can invest abroad up to: What is Overseas Investment (OI) Framework The Overseas Investment (OI) framework is India’s regulatory system that governs how Indian residents, companies, and financial institutions invest abroad. It lays down: The framework ensures orderly capital outflows while safeguarding financial stability. Legal and Regulatory Basis The OI framework operates under: Main Types of Overseas Investment 1. Overseas Direct Investment (ODI) Long-term investment where the investor has control or significant influence in a foreign entity. Examples: Typical corporate ODI limit: 2. Overseas Portfolio Investment (OPI) Passive investment without control. Examples:

Source: BL Why in News? The Reserve Bank of India (RBI) has issued new guidelines on merger & acquisition (M&A) financing and broker funding, introducing stricter conditions while also increasing lending limits. Part I: M&A (Acquisition) Financing Rules Key Provisions 1. Funding for Increased Stake Acquisition 2. Eligibility Criteria For Listed Companies: For Unlisted Companies: 3. Exposure Limits 4. Funding Structure Part II: Stricter Rules for Broker Financing New Collateral Requirements 1. Bank Guarantees 2. Proprietary Trading Exposure