The 652 'Janata deposit' collection agents of the State Bank of India (SBI) are causing a splitting headache to the country's largest commercial bank.
This is because these agents collect fixed deposits (FDs) on behalf of the bank and get a cool 3.5 per cent commission on it. And the highest interest rate offered by the bank on deposits is around 8 per cent for three years.
These agents, hired in 1971, are required to raise fixed deposits with a minimum maturity of three years. But, if SBI sources are to be believed, they FD holders withdraw the deposits after one year and reinvest the money in new deposits through the agent.
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This way, the agents get 3.5 per cent commission on one-year money. In the process, SBI's cost of funds rushes northward, making it an unsustainable proposition.
The bank has been trying to get rid of these agents and stop the scheme, without any success. It is fighting cases in virtually every high court in the country against these agents.
The corpus of deposits raised through this route is only a little over Rs 100 crore.
"The agents' commission was decided when the general interest rates were very high. With the interest rate dipping to new lows, it's absurd to pay 3.5 per cent commission," says an SBI insider.
After a series of court cases, the bank is able to reduce the quatum of commission to around 2 per cent, but even that could be implemented as the agents got a stay order against the reduction. Finally, wiser with experience, SBI is planning to move the Supreme Court to stall this practice.
In the run up to moving the apex court, the bank has appointed the National Institute of Bank Management (NIBM) to look into the entire cost structure of "Janata deposits" and see how viable it is. The plan, obviously, is to use the NIBM findings to strengthen the case for closing the scheme.