The Hindu Business Line : Steel cos parking cash with banks

Bankers say even 7.75 per cent coupon ratefor big-ticket deposits isnot on the high side. For overnight funds, they are paying rates of over 7 per cent.

Bangalore , March 3

Flush with cash, steel companies are moving out of Treasury Bills (T-Bills) and parking funds with public sector banks in a bid to maximise earnings out of investments.

Highly placed banking sources said steel companies were asking for interest rates of close to 7.75 per cent for their 90-day deposits. Bankers said almost all the steel companies, including Steel Authority of India Ltd, Rashtriya Ispat Nigam Ltd were parking their bulk cash surpluses with the banks.

The bankers said the companies usually adopted the bid route for parking the deposits. This implied that the funds would be parked with banks offering the highest rates. But some of the private sector steel companies were also parking the funds in certificates of deposits offering slightly higher rates.

The bankers said steel companies had generated the cash surpluses due to high export incomes and reduced borrowing costs. The income had mostly come from exports to China. They had also insulated themselves from input cost volatility, especially coking coal, by getting into long-term fixed price contracts with suppliers, including foreign suppliers.

For PSU banks these bulk deposits are welcome as it help them overcome their tight liquidity situation. Consequently, bankers said even the deposit rate of 7.75 per cent for the big-ticket deposits were not on the high side. For overnight funds, bankers were paying rates of over 7 per cent. In addition, bankers said the deposits could be deemed long-term funds, because the rates would be rolled over as deposits are renewed every 90 days. "If the deposit rates appear high now, they could also come down if liquidity eases," one banker said.

But some of the more market-savvy steel companies were also taking advantage of banks' appetite for assets. This has prompted some of the banks to close ranks, as some of the steel units had stepped up drawing on their credit lines and parking them in short-term deposits to maximise their earnings.Some of them had, in fact, lent the resources through the Collateralised Borrowing and Lending Obligation market, especially to other corporates. This was to ensure that the funds were secured.

Bankers said that till months ago, many corporates, including steel companies, had parked their surplus cash in T-Bills, especially 91-day bills. Investments in these bills have stopped which is evident from the drop in non-competitive bids. The bankers said the reason for this was that as banks were prepared to pay high rates the preference had shifted. The 91-day T-bills earned only about 6.75 per cent.

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