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Informist, Thursday, Jun. 5, 2025

 

By Vidhushi RajPurohit and Sachi Pandey

 

MUMBAI – After a lull in April, banks came back swinging in May, issuing certificates of deposit worth four times more than the previous month. But even with the burst of activity, the total funds raised fell short of what was needed to roll over their maturing debt. 

 

Banks raised INR 805.95 billion through CD in May, sharply higher than the INR 197.40 billion raised in April, according to data from Clearing Corp. of India collated by Informist. On a year-on-year basis, CD issuances were down 2.5% from the INR 826.30 billion raised in May last year. 

 

Despite a sharp increase in May from a month ago, issuances remained lower than the INR 923.45 billion due for redemption in May. According to market participants, banks could afford to let their earlier borrowings mature without replacing them, thanks to the ample liquidity in the system.

 

Most state-run lenders took a conservative route--redeeming old debt and avoiding fresh borrowing unless it was absolutely needed, market participants said. Some private players, meanwhile, held off issuances expecting borrowing costs to dip further.

 

"Liquidity has been in good position for the month so domestic banks did not face any major need to issue CD this month," a dealer at a large public sector bank said. "Borrowing was cheaper so that attracted some issuers but mostly it was a need to roll over their papers and the banks who were in a comfortable spot redeemed their papers."

 

Banking system liquidity averaged a surplus of INR 1.71 trillion in May, up from INR 1.40 trillion in April. The Reserve Bank of India kept that cushion intact by buying government securities worth INR 1.19 trillion in May and continuing daily variable rate repo auctions. By mid-May, durable liquidity had surged to INR 3.49 trillion, up from INR 2.03 trillion a month earlier.

 

As liquidity improved, rates dropped. By May-end, the indicative rate on three-month CD fell to 6.23% from 6.52% at the start of the month. According to dealers, the decline in borrowing rates was also owing to the market's expectation that the RBI's Monetary Policy Committee would lower the policy repo rate during the June meeting. Traders expect the rate setting panel to cut the policy rate by 25 basis points at the three-day policy review meeting outcome Friday, dealers said. 

 

 

 

"In May, shorter-end segment, like three and six month, saw increased issuances because everyone is looking at falling rates," said Himanshu Pathak, senior manager, treasury at Federal Bank. "The rates have already fallen a lot but when the repo becomes 5.75%, I believe the three month (rates) will go around 5.90% and in case there is something more announced which will help the liquidity in the system, then I believe it will come around 5.75% kind of level also," Pathak added.

 

Public sector banks dominated issuance, raising INR 491.45 billion--about 61% of total CD funds raised in May. Of this, Punjab National Bank led the pack as it raised funds worth INR 165.20 billion through CD, followed by Bank of Baroda which raised INR 119.50 billion. Together, these two accounted for 35% of total public bank fundraising.

 

Private sector banks raised far less compared to their public sector peers at INR 170.75 billion--with HDFC Bank topping the list by raising INR 81.25 billion. According to dealers, this divergence stemmed because public sector banks had a much higher volume of maturing CD as compared to private banks. State-owned banks had a total maturity figure of INR 624.30 billion, sharply higher than INR 299.15 billion for private sector banks.   

 

The falling rates also lured in fresh borrowers to tap the CD market such as foreign banks and non-bank financial institutions in May. Small Industries Development Bank of India and Export Import Bank of India, which had no redemptions due, raised INR 100.50 billion and INR 40.00 billion, respectively. Two foreign banks--Mashreq Bank and SBM Bank (India) Ltd.--raised INR 3.25 billion cumulatively through CD last month.

 

COMMERCIAL PAPERS

The picture for the commercial papers market looked different compared to CD in May. CP issuances dropped 19% on month to INR 1.28 trillion in May, but was higher than the maturity load of INR 1.21 trillion. On a year-on-year basis, issuances were down 4%.

 

The reason for this drop? Everyone was waiting. With borrowing costs expected to drop further after the RBI's June policy meeting, most companies tapped the market only to meet rollovers in May while fresh borrowing through CPs took a back seat, market participants said.

 

Rates in the instrument also fell sharply. Rates on three month papers issued by non-banking financial companies fell by 60 bps to 6.35–6.55%, while those for manufacturing companies were down by 33 bps to 6.17–6.47%. The spread between three-month CPs from NBFCs and three-month Treasury bills narrowed to 75 bps from 95 bps in April.

 

"Rates were low as everyone started looking at another cut in repo (rate) in June," a dealer at a brokerage firm said. "This attracted some issuers but mostly companies had maturities which they rolled over and other also waited for the rates to fall more which they expect to happen in June."

 

In May, non-banking financial companies had the biggest share in the total CPs issued. Of the total quantum raised through CPs, non-banking lenders accounted for around 60% of the issuances. These entities had large outstanding maturity of INR 718.81 billion in May, against which they raised INR 780.79 billion. Among the non-banking lenders, ICICI Securities was the biggest issuer, raising INR 63.95 billion, against a maturity figure of INR 41.15 billion. 

 

After a month of heavy fundraising, manufacturing companies dialled down on CP issuances. CPs issued by manufacturing companies slumped 60% on month in May to INR 419.78 billion. This was largely on account of large issuances by some occasional issuers in April. Many occasional issuers had tapped the short-term debt market in April on account of a sharp fall in borrowing costs as the MPC cut the repo rate by 25 bps to 6.00% on Apr. 9, market participants said. Consequently, having met most of their funding needs in the previous month, these companies lowered their borrowing in May, they said. 

 

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

 

CD	May 2025	April 2025	On-month%	May 2024	On-year%
State-owned banks	491.45	152.9	221.42	497	(-)1.12
Private banks	170.75	39.5	332.28	329.3	(-)48.15
Others	140.5	-	-	-	-
Foreign Banks	3.25	5.00	(-)35.00	-	-
Total	805.95	197.4	308.28	826.3	(-)2.46

 

CP	May 2025	April 2025	On-month%	May 2024	On-year%
Non-banking finance companies	780.79	443.39	76.10	928.22	(-)15.88
Manufacturing	419.78	1053.77	(-)60.16	313.46	33.92
Housing Finance	84.00	77.85	7.90	95.76	(-)12.28
REIT	-	12.75	(-)100	-	-
Total	1,284.57	1,587.76	(-)19.10	1,337.44	(-)3.95

 

End

 

Edited by Akul Nishant Akhoury

 

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