CP vs CD: Why Investors Are Moving to Certificates of Deposit
Why in the news
Money is flowing from commercial papers into certificates of deposit as CDs offer better yields, firmer credit quality and easier trading.
Key facts
- Trend: CPs outstanding down about ₹1 trillion and CDs up about ₹1 trillion since August 2025.
- Reasons for shift: higher CD yields, lower perceived credit risk, better liquidity and more bank issuance.
- Bank funding gap: credit grew about 13.1% year-on-year against deposits at about 10.6%.
| Feature | Commercial Paper | Certificate of Deposit |
|---|---|---|
| Nature | Unsecured promissory note, short-term | Negotiable short-term time deposit |
| Issued by | Corporates, financial institutions, NBFCs | Banks and select financial institutions |
| Use | Working capital finance | Bank liquidity management |
| Credit risk | Higher; tied to the company | Lower; backed by regulated banks |
| Yield | Generally higher for the extra risk | Slightly lower but rising on demand |
| Liquidity | Tradable, less liquid | More liquid, widely traded |
| Maturity | 7 days to 1 year | 7 days to 1 year |
| Recent issuance | Falling | Rising |
Why banks issue more CDs
- Loan demand is outpacing deposit mobilisation.
- Weak retail deposits and tough competition for deposits push banks to market borrowing.
- RBI liquidity measures shape short-term rates, making CDs a flexible funding tool.
Exam angle
- Compare issuer, risk and liquidity of CP and CD.
- Both are money market instruments with 7-day to 1-year maturity.
- Trend since August 2025: CP down, CD up.