Higher inflows into Foreign Currency Non-Resident (FCNR) deposits could reduce banks' reliance on certificates of deposit (CDs) this quarter. While credit demand remains strong, maturing obligations and improved deposit mobilization are shifting funding strategies. Investors should track CD issuance trends alongside deposit growth rates to gauge margin stability in the banking sector.
Indian banks are expected to rely less on certificates of deposit (CDs) for funding during the July-September quarter of fiscal year 2027. This potential shift is driven by a projected increase in Foreign Currency Non-Resident (FCNR) deposit inflows, which offer banks a stable source of capital compared to wholesale market borrowings. According to insights from India Ratings and Research, this trend may help moderate the need for aggressive CD issuances despite the overall robust demand for funds within the banking system.
Impact of Recent CD Market Trends
The banking sector saw a notable surge in CD issuance activity recently, with volumes jumping to ₹1.8 lakh crore in June 2026, compared to ₹1.1 lakh crore in the previous month. This increase was primarily led by public sector banks looking to manage liquidity and meet funding requirements. Much of this activity was tied to the refinancing of substantial CD obligations that matured during June. As these refinancing pressures subside, market analysts anticipate that issuance levels will likely pull back from the June highs.
Upcoming Maturity Schedules and Market Concentration
Looking ahead, the market is bracing for a significant volume of CD maturities between July and September 2026, totaling approximately ₹3.4 lakh crore. The maturity schedule shows a staggered impact: ₹50,000 crore in July, ₹1.14 lakh crore in August, and ₹1.7 lakh crore in September. Public sector banks are responsible for 56% of these maturing instruments, while private sector banks account for 42%.
A key aspect of this market segment is the high level of concentration among top players. The five largest issuers currently hold about 63% of total outstanding CDs. For investors, this concentration means that the funding costs and liquidity management strategies of these top banks often set the tone for the broader banking index.
Investor Monitorables for Banking Margins
While FCNR inflows provide a strategic buffer, the health of bank profit margins will continue to depend on the balance between credit growth and the cost of funds. Investors should monitor whether banks can effectively shift toward retail or foreign currency deposits, as these are generally more stable than wholesale CDs. Future updates regarding the pace of deposit mobilization and the actual volume of CD issuances in the coming months will be important indicators for assessing the interest expense and liquidity position of major banks.