IndusInd Bank has significantly ramped up its mobilization of certificates of deposit (CDs), raising over Rs 16,500 crore in March, according to data from the Clearing Corporation of India (CCIL). This marks a 5.5 times increase compared to the average monthly CD issuance of Rs 2,000-3,000 crore in the financial year 2024-25 up to February.

The surge in CD issuance comes amid growing concerns over deposit outflows, triggered by the bank’s disclosure of accounting lapses in derivative instruments earlier this month. Sources in the banking sector indicate that IndusInd Bank may have experienced deposit outflows ranging between Rs 15,000 crore and Rs 20,000 crore since March 10, when the issues were made public.

Challenges in Deposit Mobilization
As of December 31, 2023, IndusInd Bank held total deposits of Rs 4,09,438 crore. However, depositors' confidence seems to have been shaken following the disclosure of derivative-related accounting discrepancies. A senior executive at a private bank, speaking anonymously, confirmed that since March 11, fresh deposit mobilization has been challenging for IndusInd Bank.

The Reserve Bank of India (RBI) issued a statement on March 15, assuring that IndusInd Bank remains well-capitalized and financially stable. Despite this, concerns persist among depositors, leading to the bank's increased reliance on CDs to counterbalance potential liabilities.

Public Sector Banks Subscribe to IndusInd Bank’s CDs
A report by Moneycontrol on March 18 revealed that IndusInd Bank’s CDs were extensively subscribed by public sector banks. The bank may have offered higher interest rates—10-15 basis points above the prevailing market rates—to attract buyers.

Certificates of Deposit (CDs) are short-term money market instruments issued by commercial banks and select financial institutions to corporations, funds, and individual investors, primarily to strengthen their deposit base and enhance liquidity.

Future Implications for IndusInd Bank
With challenges in attracting fresh deposits, IndusInd Bank’s dependence on CDs and other money market instruments is expected to continue. The bank may need to rebuild depositor trust and ensure greater transparency to mitigate concerns surrounding its financial stability.

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