Banks' Fundraising Plummets 58% in October! Is Dalal Street Ready for the Fallout?

Banks collected significantly less funds through Certificates of Deposit (CDs) in October, with issuances dropping by nearly 58% to Rs 63,590 crore from Rs 1.5 lakh crore in September. Punjab National Bank, Axis Bank, IDFC First Bank, and Bank of India were among the top issuers in October.

Several factors contributed to this sharp decline. Experts noted that September saw unusually high issuances as banks met quarter-end balance sheet requirements and rolled over maturing debt. In October, credit growth remained moderate, reducing the immediate demand for funds. Furthermore, mutual funds, a key investor base for CDs, showed lower investment appetite due to reduced inflows into their liquid and money market schemes. System liquidity also tightened significantly, even turning negative on certain days during the Diwali festive period due to increased cash withdrawals and Goods and Services Tax (GST) payments.

Despite the lower volume, CD yields inched up by around 10-20 basis points in the three-month segment and about 5 bps in the one-year segment. The average cost of CD issuances rose to 6.24% in October from 6.03% in September.

**Impact** This news directly affects the banking sector's liquidity management and funding costs. A lower supply of CDs can lead to increased competition for funds, potentially pushing up borrowing costs for banks, which may subsequently influence lending rates for businesses and consumers. It signifies a shift in the demand and supply dynamics of short-term debt instruments within the Indian financial market.

**Rating:** 6/10 - This news provides important insights into the liquidity conditions and funding strategies of Indian banks, which can indirectly influence the broader financial market and lending activities.

**Difficult Terms Explained:** * **Certificates of Deposit (CDs):** Negotiable money-market instruments that allow banks to raise funds from the public for a fixed period at a specified interest rate. * **Liquidity:** The availability of readily accessible cash or assets that can be quickly converted to cash without significant loss of value, essential for banks to meet short-term obligations. * **Credit Growth:** The expansion of loans and other forms of credit extended by banks and financial institutions to borrowers in the economy. * **Mutual Funds:** Investment vehicles that pool money from numerous investors to purchase a diversified portfolio of securities like stocks, bonds, or money market instruments. * **Basis Points (bps):** A unit of measure used in finance to denote small changes in interest rates or other financial percentages. 100 basis points equal 1 percent. * **Quarter-end:** Refers to the end of a financial quarter (March, June, September, December) when companies, including banks, often need to ensure their financial statements meet specific reporting requirements.