Short-term funds for Indian lenders may turn expensive after early closure of FX deposit scheme

Business Recorder reported that a recent drop in the premiums Indian lenders pay for short-term funding may not last. The Reserve Bank of India moved the end of its zero-cost FX swap facility for banks forward by a month, to August 31, after inflows of more than $50 billion. That early closure could push lenders to lean on such short-term funds to meet liquidity needs over the next month.

The three-month FBIL benchmark rate for certificates of deposit rose again, with the spread over a comparable treasury bill yield reaching 130 basis points. That rise followed a fall to 110 bps, an over five-week low, recorded the previous week. Outstanding CDs hit a record 7.03 trillion rupees ($73.47 billion) by July 31, up almost 25% from the December end.

Traders expect CD issuance to ease in August before climbing again in September. Basant Bafna of Mirae Asset Investment Managers (India) said money markets remain attractive, with spreads staying above historical averages. Inflows into money market funds reached about 212 billion rupees in July, a level not seen since April 2025, according to AMFI data.