The Hindu Business Line : Public sector banks raise bulk deposits at 9% plus

Bangalore, Feb. 20 Faced with a tightening liquidity situation in the markets, the State Bank group kicked off a race to raise bulk deposits for the current financial year.

Among the SBI group banks in the market for raising bulk deposits, through the certificates of deposit (CD) route, were State Bank of Mysore (SBM), State Bank of Travancore (SBT) and State Bank of Bikaner and Jaipur (SBBJ).

All three banks were offering rates between 9.5 per cent and 9.8 per cent through placement of certificates of deposits for tenures between six months and one year.

SBM was offering 9.80 per cent for its CDs. The SBM Managing Director, Mr P.P. Pattanayak, said: “We cannot bring down deposit rates, since mutual funds and equity markets offer better returns. Besides, credit demand also has to be met.”

But most banks have clearly breached the informal ceiling of 9 per cent on bulk deposits, by pushing up rates.

Last year, all the member-banks of the Indian Banks’ Association had informally agreed to cap bulk deposit rates at 9 per cent. This was done to cap their respective cost of working funds.

The bankers said that the placement of CDs at rates above 9 per cent implied that the informal agreement was no longer valid.

Other PSU banks

However, the State Bank group banks were not the only ones to breach the ceiling.

Public sector banks like Corporation Bank had last weekend begun offering 9.5 per cent on its CD placement for Rs 225 crore.

Other PSU banks such as Allahabad Bank and Punjab National Bank had also raised resources through CDs last week at rates above 9 per cent, bankers said.

The effective cost, after factoring for maintenance of the statutory liquidity ratio and the cash reserve ratio, would be at least 50 basis points higher.

Moreover, Rabo Finance India, the NBFC subsidiary of the Dutch Rabo Bank offered 10 per cent for a three-month commercial paper placement.

MSS auctions

The tightening was largely triggered by a massive shrinkage in the rupee liquidity. The shrinkage in the rupee liquidity was largely on account of last week’s market stabilisation scheme auctions, bankers said. The outstanding MSS securities with the RBI are currently about Rs 1.76 lakh crore. Besides, PSU refiners were also drawing on their credit lines leading to a shortage in dollar liquidity as well.

Traders said that what also compounded the situation was the deceleration in inflows from foreign institutional investors and cancellation and rebooking of forward contracts by some exporters.

FII inflows since the beginning of this week was just $766 million, far short of the demand from PSU oil refiners. Bankers said that the tight liquidity was likely to continue into the next month in view of the advance tax payments.

T-bill auctions

The hardening of short-term rates reflected at the Treasury bill auctions. The cut-off yield was 9.39 per cent, up 12 basis points over last week. But the liquidity tightening was anticipated and the RBI had kept the notified amount low at Rs 500 crore.

More Stories on : Public Sector Banks | Fixed Deposits | Interest Rates

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