Indian Banks Halt Short-Term Debt Sales On RBI Move

Indian banks halted all certificate of deposit (CD) issuances for three consecutive trading sessions ending July 2, 2026. This retreat from short-term debt markets stems from the Reserve Bank of India (RBI) intervening to make offshore borrowing cheaper, according to a Bloomberg report.

Based on the Clearing Corp. of India data, CD issuance fell to ₹708 billion ($7.4bn) between June 16 and June 29. This is a sharp drop from the approximately one trillion rupees raised during the first half of June.

The central bank's June decision to absorb hedging costs for lenders raising dollars overseas drove the pullback. This regulatory adjustment opens a cheaper funding alternative for domestic banks.

Shifting Funding Dynamics

The RBI's policy shift is expected to draw in more than $50bn in foreign-currency deposits.

Banks have historically relied heavily on short-term CDs to finance rapid loan expansion. This credit growth has consistently outpaced domestic deposit mobilisation. Lenders are now rotating towards this cheaper offshore funding source.

Anshul Chandak, head of treasury at Emirates NBD-backed RBL Bank Ltd, said, "Banks will refrain from issuing CDs excessively in July-September on expectations of foreign-currency deposit flows."

Chandak, describing the future path of borrowing costs, said, "We anticipate CD rates will now level off and will only rise from September if the RBI aggressively deploys measures to drain liquidity."

Declining Borrowing Costs

The ₹708 billion raised in late June represents a 19% decline compared to the ₹872 billion raised during the same period a year earlier, according to CCIL data.

The shift is directly impacting the debt market. The interest rate on one-year CDs eased to 6.84% on Thursday (July 2), according to data compiled by Bloomberg. This marks a significant drop from a more than two-year high of 7.96% recorded in May.

Simultaneously, institutions are adjusting their offshore pricing. Banks are offering up to 7.75% on foreign-currency deposits with maturities ranging from three to five years.

Stable Long-Term Outlook

Top executives confirm the strategic pivot. Axis Bank Ltd Chief Executive Officer Amitabh Chaudhry said in a recent interview that the bank will use foreign-currency deposits raised from the Indian diaspora in the next few months to replace expensive funds.

Market participants consider these incoming funds highly reliable. Foreign-currency deposit flows are viewed as "a more stable, permanent cash flow", Alok Singh, head of treasury at Fairfax-backed CSB Bank Ltd, said.

Singh, outlining the short-term forecast, added, "We expect CD issuances to be lower until August-September, and rates have the potential to fall further by 20-25 basis points from current levels."