Whalesbook
Record CD Issuances Signal Funding Strain for Indian Banks
Indian banks have collectively raised an unprecedented ₹13.17 lakh crore through Certificates of Deposit (CDs) in calendar year 2025, data reveals. This all-time high issuance underscores a growing dependence on wholesale funding sources, a direct consequence of tepid deposit accretion and sustained pressure on low-cost Current Account Savings Account (CASA) deposits. Lenders are increasingly turning to the market to fund credit expansion amidst slowing customer deposit growth.
The Core Issue
Banks are grappling with a dual challenge: a slowdown in attracting new customer deposits and a decline in the growth of CASA balances, which are the cheapest source of funds. As savings increasingly flow into capital market instruments and physical assets, banks are compelled to seek alternative, albeit often more expensive, funding avenues. This has led to a significant surge in CD issuances compared to previous years, with 2024 seeing ₹12.34 lakh crore and 2023 recording ₹8.2 lakh crore.
Financial Implications
The shift towards wholesale funding via CDs can increase a bank's cost of funds. While CD yields have moderated from around 8.00 percent at the start of 2025 to approximately 6.70 percent currently, they are showing signs of firming up. This rise is attributed to tight systemic liquidity and market expectations that the Reserve Bank of India's rate-cut cycle may be nearing its end. Furthermore, the dominance of short-tenor CD rollovers, particularly three-month maturities, inflates issuance numbers but does not represent stable, long-term funding, posing liquidity management challenges.
Top Issuers and Market Dynamics
Bank of Baroda emerged as the largest fundraiser through CDs in 2025, mobilizing ₹1.94 lakh crore. Other major issuers include HDFC Bank at ₹1.74 lakh crore, Punjab National Bank at ₹1.66 lakh crore, Canara Bank at ₹1.01 lakh crore, and Union Bank of India at ₹86,550 crore. Market participants caution that the elevated headline issuance figures are partly driven by the rollover impact of short-term instruments.
Future Outlook
With structurally weak CASA and retail deposit growth anticipated to persist, banks are expected to further increase their reliance on wholesale funding in the coming quarters. Experts emphasize the need for careful liquidity calibration and a strategic focus on attracting more stable, Liquidity Coverage Ratio (LCR)-accretive retail deposits, even if it incurs a slightly higher marginal cost. This strategic balance is crucial for maintaining robust balance sheets.
Impact
This trend has a direct impact on the banking sector's funding costs and liquidity management. It could potentially translate to higher lending rates for consumers and businesses if banks pass on increased borrowing expenses. Investors monitoring the financial sector should pay close attention to banks' funding profiles and strategies. Impact rating: 7/10.
Difficult Terms Explained
- Certificates of Deposit (CDs): A negotiable money market instrument issued by banks, representing a deposit with a fixed maturity date and a specified interest rate.
- CASA Deposits: Deposits held in Current Accounts and Savings Accounts. These are typically low-cost, sticky funds for banks.
- Wholesale Funding: Borrowing funds in large amounts from institutional investors or other financial institutions, as opposed to retail depositors.
- Rollovers: The process of extending the maturity of a debt instrument by issuing a new one when the old one matures.
- Liquidity Coverage Ratio (LCR): A regulatory standard requiring banks to hold sufficient high-quality liquid assets to cover net cash outflows during a 30-day stress period.