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“There has been good growth in advances, with demand increasing across all segments, including retail and SME loans. Advances are expected to grow at 12-13 per cent, with deposits lagging at 9-10 per cent. Fall in repo rates has pushed down deposit rates across the banking sector, leading investors to explore other avenues to park surpluses,” said Harsh Dugar, ED, Federal Bank.
“Due to this factor, there is an increased dependence on bulk deposits and CDs by banks, which is at an all-time high. While excessive dependence on high-value deposits and CDs is not desirable, given the concentration risk and maturity build-up, it is currently not a significant percentage of total deposits that is raising any concern,” he added.
Record releases
According to Prime Database data sourced from business linebanks have raised ₹13.04 lakh crore through CDs in the primary market through 1,398 deals in the current calendar year, a record high. CDs have a shorter term but offer higher interest rates than fixed deposits.
“From a pricing perspective, CDs are significantly more expensive than sovereign money market instruments, with highly rated banks offering yields roughly 70 to 150 basis points above comparable sovereign bonds, depending on system liquidity. At the same time, fixed deposit interest rates for retail investors remain significantly lower. This difference highlights the growing gap between institutional and private funding costs and raises questions about the sustainability of the reliance on short-term lending. For private sector banks, this is often a tool for tactical liquidity management, but for PSU banks run the risk that repeat CD issuances will structurally increase financing costs,” said Venkatakrishnan Srinivasan, founder and managing partner of 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 markets. HDFC Bank has been attracting deposits faster than the banking system in recent years to reduce the credit-deposit ratio, which peaked after the erstwhile HDFC’s merger with the lender, while other major issuers have shown robust credit growth in 2025.
Faster growth
Anil Gupta, co-group head-financials sector ratings at ICRA, said banks’ credit growth has outpaced deposit growth since the GST rate cuts, leading to a mismatch in funding requirements, leading to an increase in issuance and outstanding volume of CDs. Nevertheless, despite the increase, total outstanding CDs remain at around 2 percent of banks’ total deposits, down from a peak level of 8 percent in 2012. The introduction of liquidity coverage ratio (LCR) norms has limited banks’ dependence on CDs to finance credit growth as they act as a drag on LCR, he said.
Sanjay Agarwal, senior director, CareEdge Ratings, said, “Many PSU banks have excess SLR investments. They prefer to raise money from TREPS and CDs to fund their advances, rather than increasing interest rates to attract more deposits. This helps them stay competitive and also manage the pressure on NIMs.”
Soumyajit Niyogi, director of India Ratings & Research, said structural shifts in the deposit market are pushing banks to use market-based tools to manage ALM more effectively. “Accordingly, borrowing costs are increasingly determined by market dynamics. Moreover, households are redistributing their savings to financial institutions and insurance, which in turn recycle these flows back to banks through investments in CDs and other bank bonds,” he said.
Published on December 28, 2025
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