Bulk deposit rates unlikely to touch FY12 level, say bankers

Tags: Banking
Bulk deposit rates are not likely to come up to the level seen last financial year despite the recent rise amid tight liquidity condition seen in the banking system, say experts.

They also say bulk deposit rates may match card rates (rates at which banks lend to retail depositors) from April as public sector banks will have to bring down their bulk deposits to 15 per cent of the total deposits following a directive from the finance ministry.

“Bulk deposit rates have seen a rise in the recent past due to the high liquidity deficit. However, I don’t think, they will touch the previous year level this financial year,” Indian Overseas Bank chief financial officer T S Srinivasan said.

Deposits of over Rs 1 crore is termed as bulk deposit, in which banks usually pay differential rates, which is higher than the normal deposit rates, called card rates.

In the recent past, bulk deposit rates have shot up to a high of 9.15 per cent due to the continuing liquidity deficit in the system, which last week had touched a whopping Rs 1,40,000 crore.

Last financial year, bulk deposits rates were around 11 per cent, which is around 1.85 per cent higher than the current levels.

Giving rationale for less chances of rise in bulk deposit rates, Srinivasan said in addition to the directive from the finance ministry to cut down bulk deposit to 15 per cent of a bank’s total deposit, credit growth is subdued, which provides less chances of taking deposits at high rate when the source of deployments are less.

“Credit growth has not picked up as expected in the recent past. So, in the absence of enough channels for deployment, no banks will be willing to take high cost deposits,” said Srinivasan.

Another senior official of a city-based public sector lender said bulk deposits rates may come down this financial year to match card rates from April if the liquidity situation improves.

Referring to this matter, a senior official of Indian Banks’ Association (IBA) said when the asset growth is low, bulk deposit rates are not likely to rise.

“When asset growth is low, banks will not take bulk deposits as it also imposes carrying cost on them,” IBA’s senior advisor Sangeet Shukla said.

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