Banks slash short-term debt sales on cheaper forex funding

Indian lenders are scaling back their short‑term debt offerings after the central bank’s recent initiative to attract foreign‑currency deposits provided a less expensive and more stable funding source.

According to data from The Clearing Corp. of India Ltd., banks have not issued any certificates of deposit—debt securities that mature within one year—during the three trading sessions ending July 2. This halt comes after a drop in activity, with lenders raising $7.4 billion between June 16 and June 29, down from roughly one trillion rupees collected in the first half of the month.

Bank officials anticipate the slowdown will continue through September, following the Reserve Bank of India’s June decision to cover the hedging costs faced by lenders that obtain dollars abroad.

The policy is projected to pull in more than $50 billion, giving banks a cheaper alternative to certificates of deposit, which they have traditionally used to finance loan growth that consistently outpaces deposit accumulation.

“Banks will avoid issuing certificates of deposit excessively from July to September, expecting inflows of foreign‑currency deposits,” said Anshul Chandak, head of treasury at Emirates NBD‑backed RBL Bank Ltd. “We expect CD rates to stabilize and possibly firm up from September onward only if the RBI aggressively withdraws liquidity using its tools.”

The decline in certificate of deposit issuance is notable because banks typically tap short‑term funds to bolster their balance sheets toward quarter‑end. Issuance in the latter half of June was about 19 % lower than the 872 billion rupees raised during the same period a year earlier, according to CCIL data.

Borrowing costs through these instruments have already slipped, with the one‑year CD rate easing to 6.84 % on Thursday from a more than two‑year high of 7.96 % in May, per Bloomberg data. In contrast, banks are offering up to 7.75 % on foreign‑currency deposits with maturities ranging from three to five years.

Axis Bank Ltd. plans to use foreign‑currency deposits sourced from the Indian diaspora over the coming months to replace costly funding, Chief Executive Officer Amitabh Chaudhry said in a recent interview.

Foreign‑currency deposit inflows have begun to enter the banking system, and banks regard this as “a more stable, permanent cash flow,” said Alok Singh, head of treasury at Fairfax‑backed CSB Bank Ltd. “We expect certificate of deposit issuances to remain subdued through August‑September, and rates could fall another 20‑25 basis points from current levels.”

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Published on July 6, 2026