Redemptions worth Rs 2 lakh crore in certificates of deposit (CDs) are lined up in the first quarter of the current financial year. Bankers said the decision to roll over the CDs would depend on credit pick, as loan growth was usually slack during the beginning of the financial year. In case these deposits are renewed, that will happen at a much lower rate.
Most of the CDs were issued in January-March by banks to shore up their balance sheet, as they had to meet yearly targets. Bankers estimate around Rs 50,000 crore of CDs to mature in April, Rs 47,000 crore in May and Rs 1.31 lakh crore in June. This is substantially higher than the redemptions in the same quarter last year, say bankers.
“Around 60 per cent of these CDs belong to three-month maturity and the redemptions in the first quarter this year are around 1.2 times higher than the same period last year, clearly indicating the growth in issuances,” said a treasury official with a public sector bank.
According to the latest data provided by the Reserve Bank of India (RBI), the outstanding amount in CDs went up to Rs 4,18,524 crore as on the fortnight ended February 25, with issuances of around Rs 40,000 crore worth of CDs in the same period. Also, the rates on CDs had rallied above 10 per cent across all tenors in the same period.
“Banks were issuing three-month CDs at high rates to tide over the temporary asset-liability mismatch and expected that liquidity conditions will improve after April thereby bringing down the short-term rates,” said a bond dealer with a domestic brokerage. The CDs, if needed, would be rolled over after three months at a much lower rate, the dealer added.
Analysts expect that roll-overs may happen, as banks may not want to contract their balance sheet growth. But bankers are of the view that most of this money will not be required. “This is definitely excess money which is not required. Only if credit growth is good, then there may be some need to roll over,” said the treasury official.
CD rates have already begun their downward journey. On March 31, one-year CDs were issued at 9.5 per cent, much lower than the rate of 10.2 per cent that prevailed just two weeks ago.
Following a slack in deposit growth in the first three quarters, banks had turned to raising funds from the CD market in the last quarter of the financial year 2010-11 to meet their yearly targets. The widening gap between credit growth and deposit growth led to concerns on the pace of deposit growth.
As on March 11, credit growth was at 23.2 per cent while deposit growth lagged behind at 16.6 per cent. The RBI had projected the growth rate of 20 per cent in credit and 18 per cent in deposits for the financial year 2010-11.
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