Here’s the detailed information and key points regarding the significant fall in CD issuances in April amidst easing liquidity conditions:
CD Issuance Declines Liquidity Eases:
Amidst a backdrop of easing liquidity conditions, there has been a notable decline in certificate of deposit (CD) issuances. This decline reflects shifting dynamics within the banking sector, with falling rates accompanying the decrease in CD Issuance Declines Liquidity Eases
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Decline in CD Issuances:
- Total CD issuances in April amounted to around Rs 19,850 crore, representing a significant decrease from the Rs 1.2 trillion worth of issuances in March.
- This decline is attributed to easing liquidity conditions, leading to a reduction in rates by around 40 basis points (bps).
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Reasons for Decrease:
- March typically sees higher issuances due to year-end requirements, resulting in elevated rates.
- Improved liquidity within the banking system contributed to the decline in rates and CD issuances.
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Liquidity Conditions:
- The banking system liquidity remained in surplus throughout April until a deficit was observed on Saturday due to GST outflows.
- This surplus liquidity contrasts with the deficit mode observed in January, February, and March.
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Impact on CD Rates:
- Rates on three-month and six-month CDs decreased by 40 basis points, while rates on 12-month CDs fell by 10 bps.
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FY24 CD Issuances:
- Banks raised CDs worth Rs 9.56 trillion in FY24, a notable increase from Rs 7.28 trillion in the previous financial year.
- However, the net amount raised was Rs 71,3000 crore as banks issued short-term CDs to roll them over upon maturity.
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Issuance Trends:
- The last quarter of FY24 saw the highest amount raised, with Rs 3.6 trillion, compared to Rs 2.5 trillion in the third quarter.
- February witnessed a peak in CD issuances for the financial year, totaling Rs 1.49 trillion, marking a significant increase compared to the previous year.
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Year-on-Year Comparison:
- Total issuances in April 2024 fell by 23% compared to April 2023, where banks had raised Rs 25,813 crore through CDs.
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Demand from Mutual Funds:
- Robust demand from mutual funds also contributed to the decline in CD rates.
These points highlight the dynamics of CD issuances, the impact of liquidity conditions on rates, and the trends observed in FY24.
