Cash-rich firms auction bulk deposits

The fight for deposits among banks has intensified with their credit portfolio growing faster than deposits in 2004-2005.

Earlier, borrowers sought loans from banks which offered the lowest rates. Now, depositors are parking bulk deposits with banks offering the highest rate.

The rack rate for bulk deposits has become irrelevant as banks are being forced to offer much more than what their rate cards show.

"No bank raised its deposit rates recently. A few of them have even cut their rates. They can afford to do so as the published rates for bulk deposits have become irrelevant. The actual rates offered to bulk deposits could be as high as one percentage point or even more over the rack rate, depending on a bank's need for resources," said a general manager with a public sector bank.

Cash-surplus corporations are arm-twisting banks to offer more than what they officially promise.

A public sector unit last week parked Rs 500 crore with a bank for one year at an interest rate one and a quarter percentage point higher than its rack rate.

Last month, a large public sector bank paid over 7 per cent for a one year deposit. Banks are officially offering around 6-6.5 per cent for long term deposits and 5-5.5 per cent for one year deposits.

"Corporations used to shop for loans. Now, they have started shopping for deposits. Bulk money is flowing into the bank which offers the best rate. Banks are doing this without raising the official rates," said another banker.

Last year, the banking industry saw a total credit growth of Rs 2,66,849 crore against deposits of Rs 2,15,220 crore. Reserve Bank of India governor Y V Reddy in the bank's annual policy statement last month emphasised the need for banks to mobilise deposits.