Indian lenders are pulling back short-term debt sales as the central bank’s recent push to attract foreign-currency deposits has opened up a cheaper and more durable source of funding.
Banks haven’t issued any certificates of deposit — debt instruments maturing within one year — in the three trading sessions through July 2, according to data from The Clearing Corp. of India Ltd. The pause follows a decline in issuance, with banks raising 708 billion rupees ($7.4 billion) between June 16 and June 29, down from about one trillion rupees raised in the first half of the month.
Bank executives expect the slowdown to persist until September following the Reserve Bank of India’s decision in June to absorb hedging costs incurred by lenders that raise dollars overseas. The move is expected to draw in more than $50 billion, providing lenders with a cheaper alternative to CD, which they have traditionally relied on to fund loan growth that has consistently outpaced deposit mobilization.
“Banks will refrain from issuing CD excessively in July-September on expectations of foreign-currency deposit flows,” said Anshul Chandak, head of treasury at Emirates NBD-backed RBL Bank Ltd. “We expect CD rates to now stabilize and harden from September only if the RBI uses tools to suck out liquidity aggressively.”
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