Skyrocketing CP-CD Issuances Hit Multi-Year High in FY25: Navigating Tight Liquidity Challenges with Strategic Short-Term Solutions
In the fiscal year 2025, India experienced a significant surge in fundraising through short-term financial instruments, marking notable trends in the financial landscape. According to the data from prime database.com, issuances of Certificates of Deposit (CDs) reached a staggering ₹13.2 trillion, achieving the highest level seen in the past five years. Meanwhile, Commercial Papers (CPs) issuances amounted to ₹10.6 trillion, the highest in three years. CDs, typically issued by banks, and CPs, mainly issued by corporations, serve as pivotal short-term money market instruments to address immediate funding needs, generally ranging from one week to one year.
The driving factors behind this surge include systemic liquidity constraints that became more pronounced towards the end of FY25. Banks grappled with high costs associated with retail deposits, leading asset-liability management teams to increasingly rely on CDs. “Retail deposits for banks were coming at a very high cost now, so the ALM teams were relying more and more on short-term money through CDs. Tightness in liquidity was driving higher number of CDs, but it was also because of ease of access and convenience compared with Casa deposits,” explained Venkatkrishnan Srinivasan, bond market expert and founder of Rockfort Fincap LLP.
Reserve Bank of India (RBI) data supports this rise in short-term papers, with CPs peaking at a record ₹4.8 trillion in mid-February 2025, before slightly retreating to ₹4.4 trillion by March 2025. These spikes were particularly evident during the fortnights ended 15 February and 15 June 2024, where CP issuances hit ₹1.1 trillion, marking the highest fortnightly recordings since December 2021. CDs also saw their highest issuances of ₹1.2 trillion in the fortnight ending on 21 March 2025.
March 2025 highlighted an acute funding gap as entities sought to meet year-end financial requirements amidst ongoing liquidity pressures that had persisted since November 2024. The banking system entered Q4 FY25 facing an estimated liquidity deficit between ₹1.5-3 trillion. Consequently, banks and non-bank financial companies (NBFCs) were driven towards increased short-term market borrowings. A notable piece by India Ratings revealed that CPs maturing in March, April, and May 2025 are substantial, totaling ₹2.85 trillion, with non-banking participants responsible for nearly half of these issuances.
As systemic liquidity conditions begin easing, thanks to several RBI interventions aimed at injecting durable liquidity, the pressure on short-term borrowing is likely to ease. As of April 2025, the system liquidity returned to a surplus. Reports, such as those from Kotak Institutional Equities, projected durable liquidity to rise to over ₹3 trillion by June 2025, supported by factors like reduced currency leakage, RBI’s dividend payouts, and strategic market operations.
Despite FY25 seeing a record-breaking surge in long-term debt and equity fundraising, short-term borrowings remained elevated, underscoring persistent funding shortages in the latter half of the fiscal year. Public equity fundraising soared by 92% year-on-year to ₹3.7 trillion, while overall equity fundraising stood at ₹3.9 trillion. Debt fundraising also reached unprecedented highs at ₹11.1 trillion, including private placements and public bonds, spearheaded by infrastructure and real estate investment trusts.
In conclusion, the fiscal year 2025 underscored a dynamic shift in India’s financial markets, characterized by robust activity in short-term financial instruments amidst tighter liquidity conditions that gradually eased, thanks to the proactive measures by the central bank.
Original Source: https://www.livemint.com/industry/banking/cpcd-issuances-at-multi-year-high-in-fy25-as-lenders-rely-on-short-term-papers-to-meet-funding-gap-amid-tight-liquidity-11744546659318.html
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Publish Date: 2025-04-14 06:00:00
