The recent increase in credit demand has prompted banks to actively seek funds from CDs, bonds and fixed deposits (FDs). Surplus liquidity in the financial sector fell sharply from its record levels, necessitating aggressive capital raising.

It is estimated that banks have raised around Rs 42,000 crore through CDs based on data from the Prime database. The same is true even after the rates on these devices have been continuously hiked.

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August was leading in CDs with a total of Rs 13,550 crore, followed by a total of Rs 6,550 crore and a total of Rs 2,875.

To compete for investors, several Indian financial institutions, including Indian Bank, Punjab National Bank, and Bank of India, have increased their fixed deposit (FD) rates by 5-20 basis points across maturity.

“Since liquidity is draining out of the system in a calibrated manner, banks are forced to raise funds through CDs and even through fixed deposits. Some banks require special rates for higher FD amounts. With growth picking up, we can expect banks to aggressively raise funds from the market,” said Venkatakrishnan Srinivasan, Founder and Managing Partner, Mumbai-based debt advisory firm Rockfort Fincorp.

The expansion of bank credit has consistently outpaced the expansion of bank deposits by a wide margin. Changes in bank lending due to lower base effect, smaller loans, higher working capital requirements due to higher inflation, and stronger rates in capital markets have contributed to the recent spurt in credit growth. according to reserve Bank of IndiaBank credit has grown by over 14% annually.

Meanwhile, the liquidity of the banking sector has increased dramatically during the past several months. At the time of this writing, it is somewhere around Rs 45,000 crore, down from last week’s high of Rs 1.30 lakh crore. The payment of government bonds and outflows potentially contributed to the steep decline due to goods and services tax payments.

As the demand for credit is expected to pick up during the festive season, market participants expect banks to release additional capital in the near future. On the other hand, when surplus liquidity decreases, rates on the instruments will increase.

“This momentum may continue with the back-of-credit of take and reserve Bank of India Efforts to normalize liquidity, banks need to meet the demand and get cheap sources of funds, hence mobilize through CDs and capital instruments to meet the credit demand and for the same ahead of the festivals and busy seasons. “Ajay Mangaluniya, MD and Head Institutional Fixed Income

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