Tight liquidity, deposit struggle pushes SBI to raise ₹6,000 cr via CDs at 6%

SBI’s presence in the CD market has raised eyebrows, traders said, as it signals growing difficulty among banks in raising deposits to fund rising credit demand.

The funds were raised through CDs maturing in March 2026. Union Bank of India also raised ₹200 crore via May maturity paper at 6.45%, while Small Industries Development Bank of India raised ₹4,500 crore through one-year paper at 6.95%.

Certificates of deposit are low-risk fixed-income instruments where investors deposit money for a specified period at a fixed interest rate—typically higher than savings accounts—in exchange for not withdrawing funds until maturity.

Deposit stress

SBI’s three-month CD issuance at 6% is around 90 basis points higher than the interest rate it offers on bulk deposits of 46–179 days, which stand at 5.1% for the public and 5.6% for senior citizens.

“State Bank of India tapping the CD market, that’s rare, isn’t it? I think they came, so it kind of underscores the point that supply is quite robust in the shorter end and credit off-take is well but deposits are a challenge," said Killol Pandya, fixed income head at JM Financial Asset Management.

While the amount is not large relative to SBI’s balance sheet, the act of raising short-term funds itself is unusual, Pandya added.

SBI declined to comment on the matter. Emails sent to Union Bank of India remained unanswered until press time.

SBI last raised funds through CDs in November 2024, when it borrowed ₹1,650 crore. Union Bank of India last raised ₹2,500 crore via three-month CDs at 6.03% on 24 December, traders said.

Latest Reserve Bank of India data show non-food credit growth rose 12% year-on-year as of end-December, driven by consumption demand and regulatory reforms. Deposit growth, however, lagged at a little over 9%, widening the loan-deposit gap.

Market pressure

Beyond structural imbalances, rates at the short end of the debt market have risen due to a liquidity crunch, mutual fund selling, higher-than-expected Treasury bill cut-offs and robust supply.

Yields on CDs rose by 10–15 basis points to around 6.50%, while commercial paper yields climbed 5–10 basis points to about 6.60%, according to two traders.

“Liquidity has technically moved into a marginal surplus, but remains far from comfortable. We are averaging about ₹60,000 crore a day, which is just bare bones. It’s a far cry from the ₹2.5–3 trillion we had some days ago," a senior treasury official said.

As of 6 January, liquidity in the banking system stood at a surplus of ₹80,134 crore, compared with ₹23,865 crore on 1 January, RBI data showed.

Supply surge

Outstanding CD issuances stood at ₹5.7 trillion at the end of November, up from ₹4.9 trillion a year earlier, reflecting strong supply, RBI data showed.

Apart from tight liquidity, redemptions by a large corporate on Wednesday added pressure on mutual funds, triggering aggressive selling.

“Some of the mutual funds who had that one corporate as an investor were under a lot of pressure today. So, they were selling quite aggressively," the treasury official said.

Corporate borrowing

On the commercial paper side, Godrej Industries was a lone borrower, raising ₹75 crore through paper maturing in three months at 6.49%.

Market participants expect pressure at the short end to persist unless liquidity conditions improve materially.

“They (RBI) will have to inject more liquidity… either the tax money comes back in a hurry or they do some OMO (open market operations) and give us some durable liquidity in more amounts. Otherwise, it’s going to be difficult," the treasury official said.

An earlier version of this article referred to SBI’s issuance as a three-year certificate of deposit. It is a three-month issuance.