The Hindu Business Line : Infosys parking funds with public sector banks

Chennai/Bangalore Jan. 13 A couple of weeks ago, while waiting in a queue at a wedding reception, one asked the owner of a small and medium scale enterprise about whether he was getting the benefit of lower rates. He didn’t think he was getting the benefit — for he was paying about 15 per cent for his borrowed funds to a public sector bank. The obvious next question — why did he not shift to private banks? Wouldn’t they be wooing him with various offers? And give him lower rates?

He did admit that they were after him when the going was good. But now that the slowdown had begun they had begun tightening the screws on him and charging him for every little service. He had decided that it was better to stick to public sector banks.

Can’t blame him for doing that. He was doing what the biggies and the most sought after corporate customers did. To take just the latest sample, the figures revealed by Infosys Technologies at its results press conference today seem to indicate that Infosys too has decided to lean more towards public sector banks. The deposits that it had kept with private sector banks were reduced drastically and parked with public sector banks during the last nine months.

One reason why this happened is that it was just a price game and the company parked the money accordingly. Public sector banks had offered the company higher rates.

Typically, there is a race for deposits and it is natural for banks to bid up rates for bulk deposits (anything over Rs 1 crore). These rates are usually a percentage point or two more than the card rates advertised for other borrowers. Infosys’ Chief Financial Officer, Mr V. Balakrishnan, said, “We got better rates from public sector banks. Also, the relative risk in banking with them is lesser.” He, however, did not elaborate on the rates he was able to command.

What is, however, a matter of surprise is that private sector banks did not try to match the rates and grab these deposits — something that they have done in the past. Or perhaps they tried and didn’t succeed?

Add to it the issue of risk. With banks in the West faltering, safety and security are certainly guiding factors here. In these troubled times, as one wag remarked, the focus is now on return of capital — not return on capital.

Building confidence

Explaining the rationale behind disclosing the company’s bank deposits, Mr Balakrishnan said such a move would help regain trust and build confidence in the market. “Such disclosures will act as external checks for the investors to see whether the actual money is available,” he said.

Investor confidence had taken a beating, especially after the recent Rs 7,000-crore accounting fraud at Satyam Computer Services Ltd. The IT industry’s apex body Nasscom had urged its member companies to disclose more of their numbers, to ensure credibility. “While putting checks and balances internally, one has to increase the disclosure levels. We strongly believe that the Government should mandate this kind of disclosure for all companies so that the confidence level in the market will come back,” Mr Balakrishnan said.

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