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Informist, Friday, Sept. 4, 2026

By Nandini Sinha

MUMBAI – Robust inflows under the Reserve Bank of India's swap facility for foreign currency non-resident (bank) deposits kept banks away from issuing certificates of deposit in August, with CD issuances during the month falling to the lowest level for the month in three years.

Certificates of deposit worth INR 681.3 billion were issued in August, down from INR 959.45 billion issued in July, according to data from Clearing Corp. of India Ltd. collated by Informist. Issuances in August fell over 2% on year.

Banks received $127.23 billion through FCNR (B) deposits from Jun. 8 to Aug. 31 under the RBI's special scheme to attract foreign capital. The facility for FCNR (B) deposits was among the measures announced by the RBI in June to attract foreign capital inflows.

Public sector banks raised INR 302.25 billion through CDs in August, with their borrowings falling over 55% on month and nearly 33% on year. Bank of Baroda was the largest borrower, issuing CDs worth INR 78.75 billion, followed by Canara Bank, which raised INR 72 billion.

CD issuances by private sector banks fell 6% on month and nearly 2% on year to INR 252.35 billion. HDFC Bank was the biggest borrower among private sector lenders, raising INR 162.75 billion, followed by YES Bank at INR 32 billion.

Among public sector undertakings, Small Industries Development Bank of India issued CDs worth INR 108.7 billion in August. Foreign banks did not issue any CDs during the month.

"...the major area where the funding for the banks was actually supported was through FCNR (B) (deposits). Other than this, they either had to take the OFCB (overseas foreign currency borrowing) route," a dealer at a large public sector bank said. Banks raised $5.26 billion through overseas foreign currency borrowings under the RBI's special scheme.

Banks are expected to see credit offtake pick up ahead of the festive season as they have enough cash with them, the dealer said. "...some impact (on system liquidity) will be there as CIC (currency-in-circulation) would increase in the festive season. So, I am not sure if it...would impact the liquidity numbers that much. I presume that this number might impact in inflationary terms," the dealer said. "So, this might give a chance to RBI to do a rate hike in October, which I was actually not expecting earlier."

The yields on "AAA"-rated three-month CDs fell 47–48 basis points on month to 6.37–6.43% at the end of August. Yields on six-month CDs fell over 10 bps to 6.79-6.85%, while those on one-year "AAA"-rated CDs rose 5 bps to 7.20-7.25%.

The dealer said market participants avoided trading in instruments maturing beyond March, which contributed to the rise in one-year CD rates compared with a decline in shorter-end yields. "You have no idea what will be the liquidity position in the future. Because going by the trend, there is always a dip in liquidity after September," the dealer said. This is due to a rise in credit offtake, which leads to an increase in the currency in circulation, thereby reducing system liquidity. Fears of a rate hike by the RBI's Monetary Policy Committee have also discouraged market participants from trading in longer-term instruments.

Banks mainly issued CDs to finance redemptions, dealers said. "Largely, it was to support the credit growth and the rollovers," the dealer at the state-owned bank said.

Certificates of deposit worth INR 1.26 trillion were due for redemption in August. HDFC Bank had the highest redemptions due at INR 242.10 billion. Bank of Baroda had CD redemptions worth INR 197.55 billion, followed by Canara Bank with INR 129.60 billion.

COMMERCIAL PAPERS

Commercial paper issuance saw an uptick in August due to a fall in yields, market participants said. Papers worth INR 1.80 trillion were issued in August, up 48% on month and nearly 65% on year.

Banks issue CDs mainly to raise funds for lending to meet credit demand, with the end borrowers usually being corporates and non-banking financial companies. Hoever, since borrowing through CPs was cheaper for these companies than taking bank loans, they tapped the CP market directly, the dealer at the public sector bank said. "The only thing which I assume may be cost of funds... If bank loans are cheaper for them, then they would probably go on that side," the dealer said.

COmmercial papers issued by non-banking financial companies in August rose nearly 74% on month and nearly 3% on year to INR 525.71 billion. Among non-banking financial companies, Bajaj Finance was the largest borrower at INR 95.05 billion, with INR 70 billion worth CPs due to mature in August.

While public sector undertakings remained largely absent from the CD market in August, their borrowings through CPs grew 74% on month to INR 451.75 billion. National Bank for Agriculture and Rural Development raised INR 231.25 billion through CPs in August, while SIDBI raised INR 18.5 billion.

Borrowings by brokerages rose nearly 110% on month to INR 376.3 billion. HDFC Securities was the largest borrower among broking firms at INR 85.75 billion, followed by Kotak Securities, which raised INR 82.75 billion. ICICI Securities raised INR 51.70 billion.

"If you see, CP issuances have risen since a lot of oil marketing companies and non-banking financial companies tapped the market to meet their working capital requirements," a fund manager at a large mutual fund house said. Oil marketing companies raised INR 81 billion through CPs in August. "Rates came down in the CP market due to higher liquidity (in the banking system) throughout August, which pushed rates lower in the short-term debt money market and made it attractive for issuers to raise funds via CPs."

The yields on "AAA"-rated three-month CPs issued by non-banking financial companies fell 20 bps on month to 7.00-7.05% at the end of August. Yields on six-month CPs fell 55 bps to 6.75-6.80%, while those on one-year "AAA"-rated CPs fell 10-15 bps to 7.60% at the end of August from 7.70-7.75% at the end of July.

"...CD issuances went down as banks were flushed with FCNR (B) flows. At the same time, bond yields had moved higher and system liquidity was ample, so when companies were looking to raise money, they found it more economical to tap the CP market to meet their short-term funding needs instead of locking in funds at higher levels in the bond market," an official at a large non-banking financial company said.

ROAD AHEAD

With banking system liquidity at record levels, market participants expect CD issuances to remain low in September. "...after this much liquidity very few (banks) will raise unless there is credit pick up," a dealer at a private sector bank said. "Rollover ratio has come down to 55% and hope it will be around that only."

More oil marketing companies, non-banking financial companies and manufacturing companies may issue CPs to meet their funding requirements in September if the rates ease further and remain low, dealers said. Front-loading of CP issuance may continue amid fears of a rate hike by the Monetary Policy Committee in the current financial year. Non-banking financial companies are more likely to issue CPs amid an expected rise in credit offtake ahead of the festival season.

The following are details of CD and CP issuances in August, as per data from the Clearing Corp. of India, in INR billion:

End

US$1 = INR 94.4850

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

With inputs from Vaishali Tyagi
Edited by Deepshikha Bhardwaj

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