As deposit tightness persists, banks turned to debt market to fuel growth in FY25

As deposit mobilisation pressure persisted, banks turned to raising record funds via debt capital market in FY25, experts say.

According to Reserve Bank of India (RBI) data, banks’ CD issuances reached all-time high of Rs 10.58 lakh crore in FY25, while yields on CDs increased marginally from 7.49 per cent to 7.52 per cent.

“Till date, banks have raised an aggregate of Rs 1.32 lakh crore from the debt capital market compared, with infra bonds accounting for 71 per cent share…In FY26, similar levels of issuance is anticipated based on the quantum of deposits sourced and the prevailing prices in the capital markets,” said Sanjay Agarwal, senior director at CAREEdge Ratings.

Punjab National Bank, Bank of Baroda, HDFC Bank and Canara Bank accounted for chunk of CD issuances (raising over ₹1 lakh crore each). Public sector banks (PSBs) also accounted for maximum issuances of infrastructure bonds.

“While most banks successfully tapped infra bond market, high-rated issuers had an edge across infra bonds, Tier-2 bonds, and even AT-1 bonds. Simultaneously, QIP emerged as a preferred capital-raising tool, even among top-rated PSBs, signalling a shift towards a more diversified and strategic approach to capital management in a tightening liquidity environment,” said Venkatakrishnan Srinivasan, founder at Rockfort Fincap.

Diversifying liabilities

Senior bankers say lenders’ reliance on deposits for loan growth must reduce over time. “If a bank is able to get borrowings, why should there be an insistence that your loan should be funded via only deposits. I think this would be corrected over a medium to long term period. But definitely this is one direction in which geographies overseas have already moved, and I think in India also this will improve,” said Prashant Kumar, MD at YES Bank. `

Deposit growth is constantly ranging between 10-11 percent and lenders must not be entirely dependent on deposits alone to fund loans as it can impact GDP growth, he said.

Says ICRA Ratings Vice President Sachin Sachdeva, “ICRA expects the CD ratio to remain largely stable in FY2026 and thus, the funding gap would need to be met via bonds and CDs. On an overall basis ICRA expects the infra bonds issuance and fund raising via CDs to remain range bound vis a vis the current fiscal.

Subha Sri Narayanan, Director at CRISIL Ratings, says fundamentally the banking business needs to rely on deposits to fund growth, and therefore, with the expectation of a modest pick-up in credit growth in fiscal 2026, the ability to raise deposits will remain key. In the current context of the intense competition for deposits, she says banks will continue to tap additional sources of liabilities such as bonds and CDs.

“Bond raising in general is not only from a growth perspective, but in many cases, they serve to augment the capital levels. In specific cases, such as infrastructure bonds, they do support growth with a defined end use, with regulatory benefits on the CRR/SLR/ priority sector requirement front as well,” she said.