Clipped from: https://www.thehindubusinessline.com/money-and-banking/large-banks-raise-record-funds-via-cds-in-2025/article70446612.ece
Banks’ credit growth has been outpacing deposit growth since GST rate cuts, triggering a mismatch in funding requirements, leading to increase in issuances and outstanding volume of CDs.
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Large banks raised record funds via certificate of deposit (CDs) issuances in calendar year 2025 as organic term deposit and low-cost current account and savings account (CASA) growth remained tepid, whereas credit growth saw sustained pickup, experts said.
“There has been good growth in advances, with demand pickup seen in all segments including retail and MSME loans. The advances are expected to grow at 12-13 per cent, with deposits lagging at 9-10 per cent. With drop in repo rates, the deposit rates across the banking sector have come off resulting in investors exploring other avenues to park surpluses,” said Harsh Dugar, ED, Federal Bank.
“On account of this factor, there is increased reliance in bulk deposits and CDs by banks which is at an all-time high. While excessive reliance on high value deposits and CDs is not desirable, given concentration risk and bunching up of maturities, it is presently not a significant percentage of total deposits to cause any significant concern,” he added.
Record issuances
According to Prime Database data sourced by businessline, banks raised ₹ 13.04 lakh crore via CDs in the primary market through 1,398 deals in current calendar year, a record high. CDs have shorter tenure but offer higher interest rates than fixed deposits.
“From a pricing perspective, CDs are materially costlier than sovereign money-market instruments, with top-rated banks offering yields roughly 70 to 150 basis points above comparable Treasury bills, depending on system liquidity. At the same time, retail fixed deposit rates remain significantly lower. This divergence highlights the growing gap between institutional and retail funding costs and raises questions around the sustainability of relying on short-term wholesale borrowings. For private sector banks, this is often a tactical liquidity management tool, but for PSU banks, repeated CD issuance risks structurally pushing up funding costs,” said Venkatakrishnan Srinivasan, Founder and Managing Partner, Rockfort Fincap LLP.
Bank of Baroda, HDFC Bank, Punjab National Bank, Canara Bank and Axis Bank were the largest issuers of CDs in the primary and secondary market. HDFC Bank has been raising deposits at a faster pace than banking system in recent years to lower its credit-deposit ratio, which peaked post-merger of erstwhile HDFC with the lender, while other major issuers have posted robust credit growth in 2025.
Faster advances growth
Anil Gupta, co-group head-financials sector ratings at ICRA, says banks’ credit growth has been outpacing deposit growth since GST rate cuts, leading to mismatch in funding requirements, leading to increase in issuances and outstanding volume of CDs. Nonetheless, despite the increase, overall CDs outstanding remains at around 2 per cent of banks’ total deposits, versus peak level of 8 per cent in 2012. The introduction of liquidity coverage ratio (LCR) norms has limited the reliance of banks on CDs to fund credit growth, as they act as a drag on LCR, he said.
Sanjay Agarwal, senior director, CareEdge Ratings, said, “Many PSU banks have surplus SLR investments. They prefer to raise funds from TREPS and CDs to fund their advances, rather than increasing rates to attract more deposits. This helps them remain competitive as also manage the squeeze on NIMs.”
Soumyajit Niyogi, Director, India Ratings & Research, said structural shifts in the deposit market are pushing banks towards market-based instruments to manage ALM more effectively. “Accordingly, the funding cost is increasingly being determined by market dynamics. Further, households are reallocating savings towards MFs and insurance, which in turn are recycling these flows back to banks through investments in CDs and other bank bonds,” he said.
Published on December 28, 2025
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