Indian banks have begun reducing their reliance on short-term debt instruments as the Reserve Bank of India’s recent measures to attract foreign-currency deposits provide a cheaper and more stable source of funding.
According to data from The Clearing Corporation of India Ltd, lenders did not issue any certificates of deposit (CDs) maturing within one year in the three trading sessions ending July 2. This follows a broader slowdown in issuance, with banks raising ₹70,800 crore between June 16 and June 29, compared with about ₹1 trillion in the first half of the month.
Market participants expect the trend to continue through the July–September period after the RBI’s June decision to absorb hedging costs for banks raising dollar funds overseas. The policy shift is aimed at attracting more than $50 billion in foreign-currency deposits, giving banks an alternative to domestic short-term borrowing.
Traditionally, certificates of deposit have been a key tool for banks to fund loan growth, especially when credit expansion has outpaced deposit mobilisation. However, the availability of cheaper foreign-currency funding is now reducing the need for frequent CD issuance.
Industry executives said the shift is likely to stabilise CD rates in the near term, with potential tightening expected only if the central bank withdraws liquidity through aggressive measures in the future.
The development highlights a significant change in bank funding strategies, as lenders increasingly explore global capital sources to optimise costs and manage liquidity more efficiently.