CP-CD Issuances FY25 Surge: 5 Reasons Lenders Chase Short-Term Funds

CP-CD issuances in FY25 hit a multi-year high, with banks and corporates leaning heavily on commercial papers (CPs) and certificates of deposit (CDs) to bridge funding gaps amid tight liquidity, per primedatabase.com. Fundraising through CPs reached ₹10.6 trillion, the highest in three years, while CD issuances soared to ₹13.2 trillion, a five-year peak, per Mint. As deposit growth lagged credit demand, lenders turned to these short-term instruments to manage cash flow. Why this surge, and what does it mean for India’s financial system? Let’s dive into the trends, drivers, and implications of this funding frenzy.

Table of Contents

• Understanding CP-CD Issuances in FY25
• Why Liquidity Squeezes Fueled the Surge
• Commercial Papers: A Corporate Lifeline
• Certificates of Deposit: Banks’ Go-To Tool
• Risks and Outlook for Short-Term Funding
• Conclusion

Understanding CP-CD Issuances in FY25

In FY25, India’s financial sector saw a record-breaking reliance on short-term money market instruments. CPs, issued by corporates to cover expenses like payroll, jumped to ₹10.6 trillion from ₹9.3 trillion in FY24, per Mint. CDs, bank-issued tools for quick cash, hit ₹13.2 trillion, up 37% from ₹9.57 trillion the prior year, per The Financial Express. Data from primedatabase.com shows CP issuances peaked at ₹4.8 trillion outstanding in February 2025, while CDs closed FY25 at ₹5.3 trillion, per Mint.

This surge reflects a structural shift. With liquidity deficits averaging ₹1.5–3 trillion in Q4 FY25, lenders scrambled to meet credit demand outpacing deposits, per The Hindu BusinessLine. Non-banking financial companies (NBFCs) led CP issuances at ₹7.5 trillion, while banks dominated CDs, especially in March’s year-end crunch, per Mint. The trend underscores a deeper issue: how to fund growth when traditional deposits fall short.

Why Liquidity Squeezes Fueled the Surge

Tight liquidity drove the CP-CD boom. From November 2024, banking system deficits hit a 10-year high of ₹3 trillion in January 2025, fueled by RBI’s rupee-supporting interventions, tax outflows, and GST payments, per The Financial Express. Deposit growth, at 10.3% by March 2025, trailed credit expansion at 11%, pushing the credit-to-deposit ratio above 80%, per Financial Express. Banks faced costly retail deposits, making CDs a cheaper alternative, per Mint.

The Reserve Bank of India (RBI) tried easing pressures with forex swaps and variable rate repo auctions, flipping liquidity to a surplus by April 2025, per Mint. Yet, Q4’s crunch forced action—CD issuances spiked ₹2.06 trillion in March alone, per The Financial Express. NBFCs, hit by RBI’s November 2023 risk weight hikes on bank loans, turned to CPs, with 48% of ₹2.85 trillion in maturing CPs from non-banks, per India Ratings. This liquidity trap made short-term papers a lifeline.

Commercial Papers: A Corporate Lifeline

CPs, unsecured notes with maturities up to a year, became NBFCs’ and corporates’ go-to for flexibility. In FY25, issuances rose 14% to ₹10.6 trillion, with NBFCs, housing finance companies, and investment firms issuing ₹7.5 trillion, up from ₹6.3 trillion, per Mint. Their appeal? No collateral, low regulatory oversight for maturities under 270 days, and quick cash, per Investopedia. Money market funds and corporate treasurers snapped them up for their liquidity and modest returns, per Mint.

Yet, risks loom. CPs maturing in March–May 2025 totaled ₹2.85 trillion, raising rollover concerns if liquidity tightens again, per India Ratings. Defaults, though rare, could dent confidence—Penn Central’s 1970 collapse triggered a $3 billion CP market run, per Wikipedia. Still, NBFCs’ 48% share shows their reliance on CPs to dodge bank loan curbs, per Mint. For now, CPs are a vital bridge, but stability hinges on RBI’s liquidity moves.

Certificates of Deposit: Banks’ Go-To Tool

CDs, issued by banks for tenors from one week to a year, saw unprecedented demand, hitting ₹13.2 trillion in FY25, per Mint. March 2025 alone recorded ₹2.06 trillion, 62% higher than FY24’s March, per The Financial Express. With deposit growth sluggish—10.6% versus 12.5% credit growth by January 2025—banks used CDs to manage asset-liability mismatches, per The Hindu BusinessLine. Coupon rates climbed, despite a February 2025 repo rate cut, as liquidity stayed tight, per The Hindu BusinessLine.

Why CDs? They’re faster and cheaper than chasing Casa (current and savings account) deposits, which grew costlier, per Mint. Outstanding CDs hit ₹5.3 trillion by FY25’s end, reflecting banks’ year-end funding rush, per Mint. Canara Bank’s chief economist Madhavankutty G noted CDs’ role in easing credit pressure, per The Financial Express. But higher CD costs could squeeze net interest margins if deficits persist, per The Financial Express.

Risks and Outlook for Short-Term Funding

The CP-CD surge isn’t risk-free. High issuances signal over-reliance on short-term funds, vulnerable to liquidity shocks, per BIS. In March 2020, U.S. money market funds dumped CPs during stress, forcing central bank rescues, per BIS. India’s Q4 FY25 deficit showed similar strain—CPs worth ₹1.65 trillion matured in March, per India Ratings. If investors balk, rollover risks grow, especially for NBFCs with 48% of CP exposure, per Mint.

Looking ahead, easing liquidity—RBI’s April 2025 surplus—may cool CD issuances, as credit demand dips in Q1, per The Financial Express. CP rates, down to 7.44% by November 2024, could stabilize, per The Economic Times. Still, structural gaps between credit and deposit growth persist, per Financial Express. Banks and NBFCs must diversify—mutual funds’ ₹2.33 trillion NBFC debt exposure in October 2024 offers a path, per The Economic Times. Long-term, deposit drives and RBI’s liquidity tools will shape stability. For more on India’s markets, visit RBI.

Conclusion

CP-CD issuances in FY25, hitting ₹10.6 trillion and ₹13.2 trillion respectively, reflect a financial system under pressure, per primedatabase.com. Tight liquidity, with deficits peaking at ₹3 trillion, forced banks and NBFCs to tap short-term papers to fund credit outpacing deposits, per Mint. CPs fueled corporate cash flow, while CDs propped up banks, especially in March’s crunch, per The Financial Express. Yet, rollover risks and margin pressures loom, per India Ratings. As RBI steers toward surplus liquidity, the frenzy may ease, but structural fixes are vital. This surge, a snapshot of FY25’s challenges, signals a need for smarter funding strategies to secure India’s growth.