Key Highlights
- IndusInd Bank’s Fundraising Amid Liquidity Crunch
- IndusInd Bank raised a total of ₹14,750 crore through certificates of deposit (CDs) this week to address cash shortages caused by tight system liquidity.
- On Thursday alone, the bank raised ₹1,000 crore via CDs at a rate of 7.9%.
- Major Participation by Public Sector Banks (PSBs)
- According to market dealers, a large public sector bank contributed more than half of the funds raised by IndusInd.
- Punjab National Bank (PNB) also raised ₹4,950 crore through various maturities at yields between 7.56% and 7.57%.
- Rising CD Rates Amid Liquidity Tightness
- Smaller banks are facing even higher borrowing costs, with CSB Bank raising ₹100 crore through one-year CDs at 8.5%, and Utkarsh Small Finance Bank issuing three-month CDs at 8.05%.
- All-Time High CD Issuances
- The banking sector has seen CD issuances reach an all-time high of ₹10.58 trillion in FY2024-25 (up to March 7), marking a 34% year-on-year increase, as per RBI data.
- Banks are increasingly depending on CDs to meet their short-term funding needs due to liquidity shortages.
- RBI’s Liquidity Injection Efforts
- The Reserve Bank of India (RBI) has injected approximately ₹5.5 trillion into the banking system this quarter through open market operations (OMOs), long-duration variable repo rate auctions, and forex swaps.
- Despite liquidity stress, the RBI has assured depositors about IndusInd Bank’s financial stability, stating that the bank’s financial position remains sound and is under close monitoring.
- IndusInd Bank’s Derivative Losses and LCR
- Last week, IndusInd reported internal discrepancies in its derivatives portfolio, with an expected net worth impact of 2.35% (around ₹2,000 crore).
- The bank’s liquidity coverage ratio (LCR) dropped from 118% in December to 113% as of March 9, still comfortably above the regulatory requirement of 100%.
Fundraising Details (March 20, 2025)
| Bank | Amount Raised (₹ crore) | Maturity | Yield (%) |
|---|---|---|---|
| Punjab National Bank (PNB) | 4,950 | 3 & 12 months | 7.56 – 7.57 |
| IndusInd Bank | 1,000 | 6 months | 7.90 |
| Jammu & Kashmir Bank | 275 | 3 months | 7.75 |
| CSB Bank | 100 | 12 months | 8.50 |
| Utkarsh Small Finance Bank | 50 | 3 months | 8.05 |
Total fund raised on March 20: ₹17,300 crore
The surge in CD issuances highlights the increasing liquidity stress within the Indian banking system, driving both large and small banks to raise funds at higher yields. IndusInd Bank’s massive ₹14,750 crore fundraise, led largely by public sector banks, underscores the sector’s reliance on short-term instruments to meet funding needs.
