Lenders scrambled for short-term relief when liquidity began to dry up

Fundraising through commercial papers (CPs) was the highest in FY25 in the last three years, whereas funding through certificates of deposit (CDs) was the highest in the last five years, according to data by primedatabase.com.

CDs are typically issued by banks, whereas corporates issue CPs. Both are short-term money market instruments used to raise funds ranging from a tenor of one week to up to one year.

As per the data, CDs worth ₹13.2 trillion were issued by banks in FY25 compared with ₹9.6 trillion in FY24. Similarly, CPs worth ₹10.6 trillion were raised in FY25, up from ₹9.3 trillion in the previous year. Of this, CPs issued by non-bank financial companies, including NBFCs, HFCs and investment companies, amounted to ₹7.5 trillion in the last financial year as against ₹6.3 trillion in FY24.

“Retail deposits for banks were coming at a very high cost now, so the ALM (asset-liability management) 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,” said Venkatkrishnan Srinivasan, bond market expert and founder, Rockfort Fincap LLP. Casa deposits refer to Current Account and Savings Account.

Data by the Reserve Bank of India also reflected the uptick in issuances of these short-term papers, with outstanding CPs touching a record high of ₹4.8 trillion in the fortnight ended 15 February 2025 before falling to ₹4.4 trillion as of March 2025.

Highest issuances in two fortnights

During the financial year, the highest CPs, amounting to ₹1.1 trillion, were issued in the fortnights ended 15 February and 15 June 2024. According to data from the Reserve Bank of India, these were the highest fortnightly issuances of CPs since December 2021.

The data also showed that outstanding CDs ended FY25 at a record high of ₹5.3 trillion. The highest issuances worth ₹1.2 trillion were seen in the fortnight ended 21 March 2025.

Fundraising by corporates, including lenders, is typically accelerated during March owing to financial year-end fund requirements. However, in March 2025, the funding gap was more acute due to persistently tight systemic liquidity since the end of November 2024, pushing banks and non-banks to rely more heavily on short-term market borrowings. Liquidity in the banking system is estimated to be in a deficit of ₹1.5-3 trillion during Q4 FY25.

Last month, India Ratings had, in a note, said CPs maturing in March, April, and May 2025 amounted to ₹1.65 trillion, ₹36,000 crore and ₹85,000 crore, respectively, as on 6 March 2025. Of the aggregate amount of ₹2.85 trillion CPs, non-banks accounted for 48% of the issuances at ₹1.37 trillion and public finance entities for 17% at ₹50,000 crore. These CPs have been issued by 216 corporates, wherein the top 10 issuers—who are regularly active in the market—accounted for 43% of the aggregate amount at ₹1.2 trillion.

CP maturities are seen easing as the liquidity situation improves, led by several measures taken by the RBI to infuse durable liquidity into the system. As of April 2025, system liquidity is back in surplus.

Lasting liquidity

Last week, Kotak Institutional Equities in a note said that it estimates durable liquidity to improve to over ₹3 trillion by the end of June 2025 from around ₹2 trillion currently, led by tepid leakage in currency-in-circulation, RBI dividend payout to the government of over ₹2 trillion, and off-setting of short-forward book maturities with additional open market purchases or FX swaps.

“While durable liquidity is likely to be comfortable over the next few months, banking system liquidity may fluctuate depending on the scale and pace of government spending,” the brokerage said, factoring in another 25 basis point rate cut in June. The central bank has so far cut the repo rate by 50 bps in this calendar year through two consecutive 25 bps rate cuts in February and April.

Short-term borrowings were elevated despite FY25, which saw record fundraising via long-term debt and equity. This reflects the funding shortages seen, especially in the second half of the financial year.

Overall public equity fundraising rose 92% on year to ₹3.7 trillion in FY25, whereas overall equity fundraising was at ₹3.9 trillion, according to Pranav Haldea, managing director, PRIME Database Group. Fundraising through debt also reached an all-time high of ₹11.1 trillion, including issues by infrastructure investment trusts (InvITs) and real estate investment trusts (ReITs). Of this, ₹11 trillion was raised through private placement of debt and ₹8,044 crore via public bonds.

Key takeaways 

1. CP issuances in FY25 reached ₹10.6 trillion, the highest in three years, while CD issuances amounted to ₹13.2 trillion, the highest in five years.
2. Persistent tight systemic liquidity in FY25 prompted banks and non-bank financial companies to rely heavily on short-term market borrowings to meet funding shortfalls.
3. Outstanding CPs peaked at ₹4.8 trillion in February 2025, while CDs ended FY25 at a record high of ₹5.3 trillion.
4. The liquidity deficit during Q4 FY25 accelerated short-term fundraising by banks and corporates, especially in March 2025.
5. The Reserve Bank of India implemented measures to infuse durable liquidity, leading to a surplus as of April 2025, and durable liquidity is expected to improve further by June 2025.