Top public sector banks shed bulk deposits last fiscal

Bulk deposits, that is, those above ₹1 crore, are a significant resource for banks, often constituting 10-30 per cent of the total deposit base.

Public sector banks compete with each other in mopping up such deposits, especially towards the end of the fiscal, in a bid to increase their balance sheet size.

Such deposits are provided by corporates, cash-rich public sector units and high net worth individuals. The incentive for them is a premium of 0.5-1.5 per cent on the rates they would get at the retail level.

For banks, however, these deposits often raise costs and squeeze their margins. But banks go for them for administrative convenience and to avoid the hassle of building a retail depositor base.

However, last fiscal, top public sector banks such as State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and Union Bank shed a considerable amount of bulk deposits.

One reason for this was the lack of deployment opportunities, as no major projects took off and there was no need to raise such huge funds.

According to an SBI official, “Bulk deposits are generally for a shorter time and are volatile. Currently, since the credit offtake is not very significant, we don’t really need to raise funds which are volatile, high cost and which can impact our net interest margin and profitability.”

The country’s largest lender, SBI, cut its bulk deposits by about ₹14,000 crore last fiscal.

As on March 31, 2014, the bank’s share of bulk deposits came down to 10.11 per cent from 11.63 per cent in end-March 2013.

SBI’s total deposit base as on end-March this year stood at ₹13.95-lakh crore.

A few weeks earlier, SBI had cut interest rates on bulk deposits in two maturity buckets by 25 basis points: seven to 60 days (to 6.25 per cent); and 61 days to less than one year (to 6.75 per cent).

Punjab National Bank, the country’s second largest public sector bank, had cut its bulk deposits by more than 50 per cent last fiscal.

The share of such deposits in total deposits was brought down to 4.99 per cent from 12.49 per cent. PNB has a deposit base of ₹4.51-lakh crore.

Similarly, Canara Bank shed ₹25,681 crore worth high-cost deposits.

The share of bulk deposits came down to 6.5 per cent in March 2014 from 15 per cent in March 2013. Canara Bank’s deposits were nearly ₹4.21-lakh crore.

Bank of Baroda also lowered its high-cost deposits taken at a preferential rate by nearly 50 per cent to ₹12,700 crore as on March-end 2014.

Banks currently don’t seem to need the money. According to K Subrahmanyam, Executive Director at Union Bank of India, “Our bulk deposits are below 15 per cent. We will keep reducing bulk deposits. As of now, there is liquidity in the market.”

Since there is not enough pick-up in credit market, bulk deposit rates are currently low — at 6-8 per cent — for deposits with maturity periods of three to six months.

RK Goyal, Executive Director at Central Bank of India, said, “We are in a continuous process of reducing our bulk deposits, even if credit picks up gradually, as these are very costly. We intend to bring it down to about 19 per cent this year.”

Central Bank of India’s high-cost deposits were reduced to 21.84 per cent of total deposits as on end-March 2014 and further to 21.10 per cent in the June quarter of this fiscal.

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