Banks Increase Borrowing via Certificates of Deposit

Indian banks have stepped up borrowing through certificates of deposit (CDs) as deposit growth lags behind rising credit demand. In the fortnight ended November 28, 2025, banks raised nearly ₹ 78,000 crore via CDs, reflecting tight liquidity conditions in the banking system. This trend is expected to continue as credit growth accelerates while deposit accretion remains slow.

Certificates of Deposit (CDs)

• A Certificate of Deposit (CD) is a short- to medium-term financial instrument issued by banks or financial institutions to raise funds. It is a negotiable, fixed-income security that promises to pay the holder a specified interest rate for a predetermined period.
• Purpose:
  • Alternative to bulk term deposits
  • Replenish maturing deposits
  • Ensure smooth liquidity management
• Impact: Provides banks with short-term funding to meet credit demand and regulatory requirements

Drivers of CD Borrowing

• Credit-Deposit Mismatch
  • Credit growth: 11.4% (fortnight ended Nov 14, 2025)
  • Deposit growth: 10.2%
  • Gap: 120 basis points
• Tight Liquidity
  • Sluggish retail deposit inflows post-RBI rate cuts
  • Need for short-term borrowing to maintain Liquidity Coverage Ratio (LCR)
• Policy Rate Cuts & Margin Pressure
  • Cumulative 125 bps RBI rate cuts
  • Banks cautious about lowering deposit rates too sharply
  • Need to safeguard margins while meeting credit demand
• Economic Recovery Signals
  • GST rationalisation and income tax relief supporting credit demand
  • Pickup in credit expected in H2 FY26