The Hindu Business Line : Banks losing appetite for bulk deposits

Bulk deposits are placed by corporates and large entities including State Governments, for maximising treasury earnings. Since the beginning of this year, most of the public and private sector banks had feverishly jostled with one another to garner bulk deposits. The intense competition pushed up rates for one-year bulk deposits as high as 12 per cent. As a result, accretions of wholesale deposits with the banking sector increased. Aggregate deposits are around Rs 25 lakh crore. Time deposits comprise of about Rs 21 lakh crore, with at least 35 per cent coming from large corporate deposits.

CRRs, SLRs

But bankers said that the costs of wholesale deposits were even higher than the rates offered. This was because, bulk deposits came under reserve ratios - statutory liquidity ratio of 25 per cent and a cash reserve ratio of six per cent. Consequently, the effective price for the deposits was in the region of about 13 per cent plus, bankers said. Some of the larger public sector banks such as Canara Bank, Punjab National Bank andthe State Bank group have a cushion of current and saving accounts or CASA. This cushion notwithstanding, almost all PSU banks have imposed ceilings on their bulk deposit intake of anywhere between 30 - 35 per cent of the net demand and time liabilities.

T-Bills

Large public sector entities as a rule prefer to place their deposits only with public sector banks and very rarely with the private sector banks. Most of these entities have parked some of their cash surpluses with the PSU banks in view of the high rates on offer, as opposed to investing in 91 day T-Bills. Bulk deposits were offered rates of over 11.5 per cent for one year till last week. T-bills for 91-day maturity offered barely 8 per cent.

But bankers said, the rush was triggered by the recent spike in call money rates. Many of the banks, they said, had arbitraged between the call rates and bulk deposit rates for booking large spreads. This, the banker said, was a "one-off situation and unsustainable." Currently bulk deposit rates have retreated to about 10.5 per cent and could go down further, as banks begin redeeming maturing accounts, they said.

Unsustainability

The unsustainability was also largely due to the pressure building up on NIMs (net interest margins). A banker said there was a little flexibility for hikes in the benchmark prime lending rate in view of customer resistance. The BPLR is currently 12 per cent. Besides at least 30 per cent of the credit off take was from the farm sector. The average yield from farm credit was about nine per cent, inclusive of Central Government subvention of two per cent.

Besides, retail credit off take had also slowed considerably since the beginning of the fourth quarter this financial year. Retail credit growth was now in single digit numbers, as against the 22-25 per cent growth sustained during the last three years.

Given this situation, there was little banks could do to defend the existing industry average NIM of 3.2 per cent. "The only option is to contain the cost of liabilities," the banker said.

More Stories on : Fixed Deposits | Insight | Interest Rates

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page