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BankingNABARD / RBI

Bank liquidity stress from maturing CDs in March quarter

5 March 20261 min read
BANKING & FINANCEBank liquiditystress frommaturing CDs inMarch quarter5 March 2026safalsetu.com

Why in the news

Banks leaned on certificates of deposit through the winter; as these mature, repayments could temporarily strain liquidity in the quarter ending March.

Key facts

  • Banks raised funds via many short-term CDs in December, January and February, because of tight funding and sluggish retail deposit growth.
  • Repayments on maturing CDs count as outflows over the next 30 days, so the Liquidity Coverage Ratio (LCR) may dip in Q4 FY2026.

Credit versus deposits

MeasureGrowth (year-on-year)
Bank creditabout 13.4%
Depositsabout 11.2%

About CDs and LCR

  • Certificate of Deposit: money market instrument sold mainly to mutual funds, corporates and financial institutions; usually pays more than retail deposits.
  • LCR: tests whether high-quality liquid assets cover 30 days of cash outflows.
  • Banks typically hold 115-120% against the 100% minimum.

Exam angle

  • Regulatory minimum LCR: 100%.
  • Cause of stress: CD repayments counted as 30-day outflows.
  • Underlying gap: credit growth ahead of deposit growth.

Test yourself

1. What is the minimum Liquidity Coverage Ratio that the RBI requires banks to maintain?

The notes state the RBI minimum LCR is 100%, while banks usually keep 115-120%.

2. A Certificate of Deposit issued by banks typically has a maturity of:

CDs are short-term instruments with maturity from 7 days to 1 year.

3. Why may banks' LCR fall temporarily in the March quarter?

Repaying maturing CDs adds to cash outflows in the next 30 days, reducing LCR.

This topic is part of Daily Current Affairs 4 & 5 March 2026 (28 topics).

All topics of the dayDay quizMarch 2026

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