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Our Bureau

New Delhi, Aug 13 The Finance Minister, Mr P. Chidambaram, on Wednesday said that Central public sector enterprises (CPSEs) appear to be violating Government departmental guidelines on placement of funds with banks.

“They (CPSEs) are continuing to call for competitive bids… nor are they observing the guidelines that 60 per cent of public sector companies’ monies should be kept with public sector banks. I intend to take up this matter with the Department of Public Enterprises (DPE)”, Mr Chidambaram told reporters after a meeting with the chief executives of public sector banks here today.

The Finance Minister also plans to talk to the Minister concerned (Ministry of Heavy Industries) and call a meeting of CPSEs to urge them to desist from such an unhealthy practice.

To avoid undesirable competition among banks leading to arbitrary hike in deposit rates, the Finance Ministry had, in January 2008, issued instructions to discontinue the practice of inviting competitive bids for bulk deposits. It was felt that banks were unable to reduce the lending rates due to the higher average cost of funds mobilised by them through the process of bidding.

The Department of Expenditure in the Finance Ministry had also then issued instructions that funds under the control of Government ministries should be placed with banks at least to the extent of 60 per cent.

In April 2008, the DPE had advised all CPSEs to comply with the instructions of the Department of Expenditure while making investment decisions with regard to placement of their funds.

For bulk deposits, sources said that banks were offering higher rates of interest of around 1-4 per cent over their card rates. Between May 1 and July 31 this year, 12 banks had accepted about Rs 26,600 crore of bulk deposits.

Some bankers, who attended the meeting, said that CPSEs continue to invite bids from all commercial banks and that it was for the Government to reiterate its directives to them. At the same time, they noted that occasional access to bulk deposits may be necessary to tide over mismatches in deposit accretion and credit disbursal.

More Stories on : Fixed Deposits | PSU | Public Sector Banks

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