The Hindu Business Line : Banks turn cautious on bulk deposits

Bangalore March 20 In a bid to contain possible asset-liability mismatches, public sector banks (PSBs) have begun capping their bulk deposit acceptances.

Bankers said that there was no Reserve Bank of India fiat on such capping. Most of the banks that have capped bulk deposits have done it voluntarily. The caps are in the range of 30-35 per cent of their net liabilities, they added.

Vijaya Bank has already imposed such a cap. The Chairman and Managing Director, Mr Prakash P. Mallya, confirmed the development.

"We have imposed a ceiling of 30 per cent on our bulk deposit intake," he said.

Other banks are also expected to take identical steps soon.

According to the bankers, the move was taken to contain any fallout in the event of premature redemption.

Most of the bulk depositors are insurance companies, money market mutual funds, State Governments and large corporates. The bulk deposits mopped up were for tenures up to a year. These deposits were taken after an intense bidding match between all the banks.

One large PSB, as a consequence, had upped the ante in this intensifying deposit rate skirmish, offering rates of up to 11.4 per cent on one-year bulk deposits.

The bankers said that the chase for bulk deposits was also partly on account of the ambitious targets placed by some large banks. Two of the largest public sector banks, vying for the number one slot, were leading the pack for raising corporate bulk deposits. Both banks are trailing business figures of Rs 2.3 lakh crore for the current fiscal.

Banks' preference for bulk deposits showed up in the RBI's weekly data.

Between December 31 and March 2, aggregate deposits have gone up by Rs 1.04 lakh crore. Time deposits during the same period rose by over Rs 90,000 crore.

The bankers said that the increase was mostly accounted for corporate bulk deposits. This also contributed the big jump in competitive bids at the weekly 91-day Treasury Bill auctions. Last week alone, the competitive bids made were over Rs 4,000 crore.

Marginal cost impact

Yet, few banks believe that bulk deposits will impact costs. "At best the cost increase will be marginal," a banker said.

The cap imposed would take care of any impact on costs, according to the bankers.

But not many banks have reached the 30 per cent ceiling. This means that the bulk deposits pursuit is unlikely to cease in the near future.

Besides, the bankers said, PSBs have a large current and savings accounts (CASA) base.

CASA accounts for about 40-45 per cent of the deposit of some of the large PSBs.

Savings accounts cost only 3.5 per cent. Inclusive of administrative and reserve ratio costs, the average cost is still under four per cent, leaving the weighted average costs at 6.5 per cent, the bankers said.

Besides, they added, in the event of any premature redemption of bulk deposits corporates would be entitled to only the rates prescribed for that particular spectrum, though this is exactly what banks fear. The flip side is that such a scenario would bring down the weighted costs.

More Stories on : Public Sector Banks | Fixed Deposits

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