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Informist, Wednesday, Jan. 15, 2025

 

By Siddhi Chauhan

 

MUMBAI – Large debt maturities in December and an attempt by banks to bridge the gap between credit and deposit growth ahead of the quarter-end led to an over 69% on-month jump in issuances of certificates of deposit, dealers said. A sharp rise in liquidity deficit in the latter half of the month also fuelled the need for short-term debt issuances, they added.

 

Borrowing through CDs in December amounted to INR 1.56 trillion, up 34.2% on year. Clearing Corp. of India data collated by Informist Media showed CDs worth INR 1.47 trillion were set to mature in December. In November, CD redemptions stood at INR 629.45 billion. 

 

Borrowing through CDs also increased in December as banks relied on the instrument to disburse additional loans as they looked to dress up their balance sheets towards the quarter-end. Banks have been grappling with slower deposit growth compared to credit growth for several months now, which has worried the Reserve Bank of India. This has led the RBI to urge banks to focus more on deposits. According to latest data from RBI, bank loans rose 11.2% on year to INR 177.43 trillion as of Dec. 27, while bank deposits were up 9.8% on year at INR 220.63 as of Dec. 27.

 

"CD issuance in the quarter is always higher because you need to mobilise deposits for lending, so if regular deposits are not coming, then you will need to rely on CD," said Rajeev Pawar, treasury head at Ujjivan Small Finance Bank. "If liquidity tightens then too banks tend to move towards CDs."

 

Out of the total CD borrowings in December, issuances by state-owned banks accounted for INR 1.04 trillion, or around 66.6% of the total issuances. Amongst state-owned banks, Punjab National Bank was the largest issuer, raising INR 267.05 billion in December, followed by Bank of Baroda, which raised INR 223.95 billion.

 

Meanwhile, borrowing by private banks accounted for 29.5% of the total issuances. Private banks borrowed INR 460.65 billion through CDs in December, out of which the largest share was by HDFC Bank with a borrowing of INR 268.50 billion. The largest private lender was followed by Axis Bank, which raised INR 45.75 billion in December.

 

Export and Import Bank of India and the Small Industries Development Bank of India raised INR 61 billion in total, accounting for around 4% of the issuances. In an unusual occurrence, SBM Bank, a foreign entity, also tapped the short-term debt market last month.

 

The CD issuances last month were 6% higher than the redemption amount. The excessive demand for funds amid a high deficit prevailing for most of the month pushed up rates on the three-month papers by 22 basis points. The rates on CDs issued in the three-month segment ended at 7.40%-7.45%. Liquidity deficit in December rose to a seven-month high on account of corporate advance tax outflows which drained around INR 2 trillion from the banking system.

 

COMMERCIAL PAPERS

Borrowing through commercial papers rose by 33.5% on month to INR 1.50 trillion as issuers tapped the short-term debt market to finance redemption in December. Tight liquidity and the need for funds ahead of quarter-end also led issuers to tap the short-term debt market aggressively, dealers said.

 

"Liquidity was very tight in December and many rollovers were also happening which had to be repaid upon maturity. So instead of borrowing from banks, issuers raised CPs," Murthy Nagarajan, head of fixed income at Tata Mutual Fund, said. CPs aggregating INR 1.56 trillion were set to mature in December. In November, CP redemptions stood at INR 1.14 trillion.

 

Out of the total borrowing through CPs, non-banking financial institutions accounted for a major chunk, raising INR 1 trillion. Amongst NBFCs, Small Industries Development Bank of India was the largest issuer, raising INR 181 billion, followed by National Bank for Agriculture and Rural Development raising INR 147 billion in December. Borrowing by housing finance companies stood at INR 81.65 billion.

 

"NBFCs are not able to raise money from banks after the RBI has asked banks to reduce exposure to them. This is the reason why they are coming to CPs to raise funds," Nagarajan said. Borrowing from banks has become more expensive for NBFCs due to the RBI's regulatory mandate of higher risk weights on banks' lending to these companies.

 

Borrowing by manufacturing companies fell 2.9% on month to INR 420.76 billion. Reliance Jio Infocomm Ltd. was the largest issuer raising INR 61 billion, followed by Reliance Retail Ventures Ltd. which raised INR 42 billion.

 

Issuances by manufacturing companies were slightly hampered by a 20 bps rise in rates, dealers said. For manufacturing entities, the rates for three-month CPs were at 7.45-7.50% near the end of December, against 7.25-7.30% quoted at the start. Papers of similar maturity issued by non-banking financial entities also rose to 7.50-7.55% from 7.45-7.50%. 

 

According to a report by India Ratings and Research, the volatile liquidity conditions, coupled with external pressures, pushed short-term rates higher by 10-15 bps compared with the early weeks of December.

 

Following are details of CP and CDs issued in December, as per data sourced from the Clearing Corp. of India and compiled by Informist. Amounts in INR billion:

 

CD	Dec. 2024	Nov. 2024	on-month %	Dec. 2023	on-year %
State-owned banks	1040.6	564.85	84.23	706.80	47.23
Private banks	460.65	335	37.51	391.95	17.53
Foreign banks	0.25	0	0	-	0
Others	61	22.75	168.13	65.50	-6.87
Total	1,562.25	922.60	69.33	1,164.25	34.19

 

CP	Dec. 2024	Nov. 2024	on-month %	Dec.2023	on-year %
Housing	81.65	51.00	60.10	81.99	-0.41
NBFC	1,002.40	642.66	55.98	693.81	44.48
Manufacturing	420.76	433.31	-2.90	336.88	24.90
Other	-	1.25	-	-	-
Total	1,504.81	1,126.97	33.53	1,112.68	35.24

 

End

 

Edited by Ashish Shirke

 

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