There is competition among banks! Raise ₹ 1 lakh crore in June as interest rates fall, know what is the new mathematics

There is a tremendous hustle and bustle of fund raising currently being witnessed in the Indian banking sector. To take advantage of the recent fall in interest rates in the market, the commercial banks of the country have increased the pace of raising short-term resources i.e. short-term funds. For this, banks are issuing Certificates of Deposit (CD) on a large scale. According to banking sources and latest financial data, in the month of June of the current financial year itself, banks have raised a huge amount of about Rs 1 lakh crore from the market through CDs. Market experts say that banks have adopted this aggressive stance to maintain better liquidity conditions and to meet credit growth i.e. increasing demand for loans.

Banks took full advantage of the cut in interest rates The trend of interest rates in the market has been downwards for some time. This softening of rates has significantly reduced the cost of raising funds for banks. When interest rates are high, banks have to pay more interest to raise funds, which increases their cost of funds. But as soon as the period of falling interest rates started, banks without wasting time started working on the strategy of raising huge amount at low cost. This is the reason why a sudden surge has been recorded in the activity of issuing Certificates of Deposit in the month of June.

Big preparations to meet the increasing demand for loans At present, there is a continuous increase in the demand for retail to corporate loans in different parts of the country and local markets. The need for loans has increased especially in metropolitan and industrial areas as well as in Tier-2 and Tier-3 cities. To meet this local and regional credit demand (Geographical Credit Demand) on time, banks will have to maintain sufficient cash with them. A large part of this Rs 1 lakh crore fund raised in June will be used to support this loan growth and maintain smooth credit flow in various regions of the country.

A new era of modern banking and liquidity management In today’s era when AI and modern generative technologies are increasingly influencing the functioning of financial markets, banks are also making their liquidity management extremely smart and dynamic. Banks are now using real-time data and algorithms instead of traditional methods to decide when and at what rate they have to raise money from the market. Issuance of CDs in record quantity in the month of June is part of this modern financial strategy, which has given great success to banks in meeting their financial needs in less time and at lower cost.