Certificate of deposit

A tradable short-term deposit issued by a bank, sold at a discount and repaid at face value on maturity. Indian banks issue them for 7 days to a year, in units of ₹5 lakh, mainly to mutual funds and companies; some financial institutions may issue them for up to three years.

A ₹5 lakh certificate maturing in 182 days and issued at ₹4,84,000 yields about 6.63% a year.

Banks use them to raise money quickly when deposits lag loan growth. Both the volume outstanding and the rate paid are therefore a reading on how tight bank funding is. A bank paying well above its peers on certificates of deposit is telling the market it needs the money.

Watch the rate against the repo rate.