SBI re-enters CD market, raises Rs 1,500 crore

State Bank of India (SBI) raised around Rs 1,500 crore via certificates of deposit (CDs) in the past two days. Following the huge success of its retail bond issue, the country’s largest lender in the beginning of March had said it would not tap CDs or offer higher rates on bulk deposits. It had raised Rs 5,500 crore through the retail bond issue.

“There are no liquidity issues as such. These are more for trading purposes. There is still an opportunity to earn 40-50 basis points,” said a senior SBI official.

SBI raised Rs 150 crore via 3-month CDs at 9.75 per cent and Rs 820 crore via one-year CDs at 9.95 per cent. Yesterday, the state-run lender had raised Rs 600 crore for three months at 9.70 per cent. “There is no definite plan to raise, but we might raise as far as pricing allows,” the official said.

Banks have been aggressively accessing the CD market for funds since November 2010, as there were concerns on the pace of deposit growth. According to the Reserve Bank of India, the outstanding amount in CDs rose to Rs 4 lakh crore as on February 11. CDs worth Rs 51,000 crore were issued during the fortnight ended February 11.

CD rates had shot up above 10 per cent levels, as banks were shoring up their deposit base towards the end of the financial year. Though CD rates have peaked, they continue to stay high. “Liquidity is expected to improve in April and, hence, short-term interest rates may come down further,” said the official.

Banks have been heavily borrowing from the RBI’s repo window. Today, repo drawdown was around Rs 1.4 lakh crore, as there are pressures on liquidity on account of advance tax outflows.

Source: Business Standard