Short-term borrowing is getting costlier for India's public-sector banks: The Economic Times reported Nov. 3 that rates on one-year certificates of deposit had climbed above 8% amid tighter liquidity.
Official auction data show a parallel move in the government borrowing market. The Reserve Bank of India set the cutoff yield on 364-day Treasury bills at 6.6900% on Oct. 28, versus 6.4891% on Oct. 14, a rise of about 20 basis points.
The Economic Times said average daily surplus liquidity in India's banking system dropped to ₹2.3 lakh crore in October, down from ₹7.7 lakh crore in September. It also reported that comparable CD rates stood near 6.6% in August, when FCNR(B) inflows had left banks with abundant liquidity.
Certificates of deposit (CDs) let banks raise short-term funds by issuing negotiable, unsecured instruments against deposited funds. RBI rules allow terms of up to one year. CD rates are distinct from rates on retail fixed deposits offered to individual savers.
The newspaper also cited CD issuance of ₹19,505 crore for the fortnight ending Aug. 31, ₹74,607 crore by Sept. 30 and ₹45,781 crore by Oct. 15. The RBI's Database on Indian Economy lists about ₹19,502 crore for the Aug. 31 period, ₹3 crore below the newspaper's figure.
Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, told The Economic Times that CD pricing follows Treasury bill yields for similar terms. He said higher bill yields and demand during the liquidity squeeze were both pushing CD rates upward.
Gopal Tripathi, head of treasury at Jana Small Finance Bank, said market participants were also factoring in possible interest-rate hikes. He said expectations had shifted toward higher rates and judged that CD rates had not reached their peak.
