Banks had increased their fundraising activity through issuance of certificates of deposits (CDs) as funding in the banking system continued to contract, analysts said. 

“Banks are not raising deposit rates as they are able to get funds easily from money market by issuing CDs, and that too cheaply, and they may continue to opt for this route of fundraising for next few weeks,” said Raju Sharma, the head of fixed income at IDBI Mutual Fund. 

Private and State-run banks have raised around Rs 30,000 crore through two-month to one-year CDs in the two weeks to August 19, sharply higher than the roughly Rs 5,000 crore in the previous two weeks, data compiled by the Reuters shows. 

Larger lenders, such as Punjab National Bank and Bank of Baroda have also jumped the bandwagon and are actively borrowing funds through three-month and one-year notes. These lenders are paying around 6.60-6.74 per cent for one-year funds and are keen to tie up funds for a year in anticipation of policy tightening in the near future. 

The Reserve Bank of India’s (RBI) Repo Rate stands at 5.40 per cent. 

India’s banking system liquidity surplus has dropped below Rs 1,00,000 crore and has averaged around Rs 1,40,000 crore rupees in August, falling further from Rs 1,90,000 in July and Rs 2,92,000 crore in June. 

“With liquidity getting drained out of the banking system, we expect banks to continue to raise funds through CDs as well as bonds,” said Venkatakrishnan Srinivasan, the founder and managing partner of debt advisory firm Rockfort Fincap.