Ministry had directed them to reduce share of such deposits
Customers may now have to be content with a lower rate of return on bulk deposits parked with banks.
Faced with a daunting task of scaling down the share of bulk deposits (including certificate of deposits) to 15 per cent of total deposits by March 2013, banks are planning to lower interest rates on such deposits.
Banks also plan to approach the Union Government to seek an extended time period to comply with the norms. In a recent move, the Finance Ministry has directed public sector banks to bring down the share of bulk deposits to 15 per cent of their total deposits by March 2013.
The move was taken primarily to improve the banks' profitability and improve their asset-liability management.
According to D. Sarkar, Chairman and Managing Director, Union Bank of India, banks will lower interest rates on bulk deposits, which are quoted 40-50 basis points over the card rate, to bring down the share of such deposits.
The government’s move comes at a time when the credit demand is not very high, said S.L. Bansal, Chairman and Managing Director, Oriental Bank of Commerce.
Not much credit demand
“Fortunately there is not too much of a credit demand. So unless a bank is very crazy about growing its balance sheet, then it will refrain from raising such deposits. Rates on bulk deposits will automatically come down,” he said.
Drastic reduction in bulk deposits will lead to asset-liability mismatch.
“Some banks have taken high cost deposits and have created assets in appropriate time buckets. If they do not renew these deposits then it will affect their growth,” a senior bank official said.
Bulk deposits account for close to 40 per cent of Corporation Bank’s total deposits as on March 31, 2012. According to Ajai Kumar, Chairman and Managing Director, the bank plans to seek relaxation in timeline from government for scaling down the share of bulk deposits.
Extended time period
The share of bulk deposits stands at 39 per cent of Central Bank of India’s total deposits, said its Chairman and Managing Director, M.V. Tanksale. “We want to shed these deposits, but it might not be possible by the end of this fiscal. We hope to do it by next fiscal,” he said.