With retail investors less inclined to put money into savings accounts due to low interest rates, banks have raised bulk deposit rates to ramp up their deposit base.
However, bankers believe net interest margins will not be affected, as a likely increase in credit demand after October will ensure these resources are allocated.
“Bulk deposits rates are a little higher, as seen in the rates offered for certificates of deposit (CDs) in the recent past. As on date, our deposit base through CDs stands at Rs 12,000 crore and we do have enough credit demand to allocate the freshly-raised money,” said R N Pradeep, chairman and managing director of Corporation Bank. He added retail deposits were also encouraging for the bank. Bulk deposits are usually higher than Rs 1 crore. Banks raise bulk deposits through CDs from institutions and retail depositors.
“We have raised the retail bulk deposit rate for Rs 5 crore and above deposits by 50 basis points to 7.5 per cent, effective from Monday, to ramp up our deposit base,” said a top official of Karnataka Bank. The CD portfolio of Karnataka Bank stands at Rs 500 crore, less than two per cent of the total deposits. “We don’t see any impact on our net interest margin as credit offtake has already shown signs of growth,” he added.
Banks like Corporation Bank, Bank of Baroda and State Bank of India raised around Rs 5,025 crore on Friday through CDs. Interest rates for three-month CDs have been ruling in the range of 7.04-7.19 per cent of late.
Canara Bank Executive Director H S Upendra Kamath said though the bank had a CD portfolio of Rs 34,000 crore as of June, it paid 6-6.5 per cent interest to raise this amount, as compared to the current seven per cent-plus rate. He added that most CDs were coming for redemption and the bank had no plans to raise fresh money through CDs as of now.
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However, some banks are refraining themselves from raising bulk deposits due to tepid credit demand.
“Why should we raise money when credit offtake is not enough to absorb this money,” said a top official of Vijaya Bank. He added deposit accretion would take some time as the effective rate of return on most saving instruments was negative.