#HDFCBank - Business Outrank

Banks are relying more upon the certificates of deposit market as the growth of the deposits fails to match the credit requirement. The data indicated by the Clearing Corporation of India showed that outstanding CDs had reached a record high of 5.75 trillion within the period of twelve weeks ending on January 15. This, we regard as indicative of stricter liquidity in the system. The deposit growth remains behind the credit growth by almost 180 basis points. This has created a gap, which has caused the lenders to look towards wholesale markets to get short-term financing. With a growth in demand for money, the cost of borrowing has shifted to the higher side, pushing the rates of the CDs to over 7 percent at some of the larger banks in the private sector. HDFC Bank has also increased 1 year of 701 percent of the ₹450 crore within major issuers. IndusInd Bank borrowed at 7.49 percent 1075 crore in the same tenor. ICICI Bank issued bonds at 6.95 percent, and the bank attracted 2,685 crore of funds, which indicates that the cost of funding is high. Although the outstanding stock recorded an all-time high, the new issuance decreased. The most recent two weeks showed that banks raised ₹40,189 crore, which is a significant drop in comparison with the 88,512 crore in the past fortnight. The increased rates seem to have put off aggressive issuance, despite the liquidity requirements staying high. In the past two fortnights, over 3.77 trillion CDs have been issued by banks. The issuances resumed in mid September, aided by changes in policy and a reduction of rate. Nonetheless, the liquidity of the systems remained constrained, and short-term rates remained hard regardless of the less decisive stance of the policy. In the most recent figures released by the Reserve Bank of India, the growth rate of credit was recorded to be 14.5 percent, and the growth in deposits was also 12.7 percent. The imbalance has brought about a dependence on short-term instruments. Analysts caution that this kind of dependency can increase refinancing risks in case things become volatile in the market. Analysts indicate that returns on CDs will not decline, as long as liquidity does not meaningfully increase. Open market operations, variable rate repo auctions, and Gutka dollar rupee swaps are the steps that have already been proclaimed by the RBI to release the funding pressures. These measures will stabilise liquidity and avoid further spikes in the short term rates. This is the reason why CDs are still popular since they are rated and can be easily traded to the ease of liquidity management. Nonetheless, in this market, the mutual funds still prevail and are also investing in higher-yielding commercial paper. We feel that banks can still strike the balance between CDs and sizeable deposits when funding requirements are considered.

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