 "Upward pressure pushing bulk deposit rates")
With the government taking Rs 40,000 crore from public sector entities as interim dividend, banks are facing the heat. Bulk deposit rates are rising at a time when the lenders are scrambling for cash to meet their year-end targets.
According to market participants, a few large public sector banks (PSBs), including two Mumbai-based lenders and one based in Karnataka, were involved in bidding, pushing the one-year bulk deposit rate above 10.05 per cent. These are typically deposits of more than Rs 10 crore, for which banks offer a premium on the card rate.
However, overnight rates have remained steady. “The spike in bulk deposit rate is mainly because a lot of deposits are coming for maturity. In addition, the cash outflow due to interim dividend has put pressure on system liquidity,” said a PSB treasury head.
On Tuesday, banks raised CDs of Rs 11,000 crore in two-month and one-year maturity buckets. The one-year CD rates were in the range of 10-10.2 per cent; those for two-month CDs were 9.8-10 per cent.
Liquidity will further tighten after the corporate advance tax outflow scheduled by the middle of this month. Market participants estimate an outflow of Rs 50,000-60,000 crore due to this.
“The interim dividend payment and advance tax outflow will add some liquidity pressure. But the Reserve Bank of India (RBI) might ensure the deficit is not large. They might do so by conducting term repo auctions and addition repo auctions. It is a seasonal phenomena that at this time, bulk deposit rates of banks and rates of CDs go up. These go up because banks want to show growth in their balance sheet and besides, there are re-issuances of CDs which take place. These rates will cool down in April,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
However, CD rates softened a bit on Wednesday, though the softening is seen as temporary. Canara Bank raised two-month CDs at 9.77 per cent and Punjab National Bank one-year CDs at 9.72 per cent. “As maturities are coming up in liquid and liquid-plus funds, fund houses are buying these CDs, due to which rates cooled today (Wednesday). But this spree might not continue for long. Besides, advance tax outflow will add to liquidity pressure, which would result in short-term rates climbing up,” said Dwijendra Srivastava, head of fixed income, Sundaram Mutual Fund, on Wednesday.
According to estimates of issue arrangers, CD rates across various maturity buckets have gone up by 25-50 basis points in the past one month. Most arrangers see a further rise of 25 bps from current levels.
According to market participants, a few large public sector banks (PSBs), including two Mumbai-based lenders and one based in Karnataka, were involved in bidding, pushing the one-year bulk deposit rate above 10.05 per cent. These are typically deposits of more than Rs 10 crore, for which banks offer a premium on the card rate.
However, overnight rates have remained steady. “The spike in bulk deposit rate is mainly because a lot of deposits are coming for maturity. In addition, the cash outflow due to interim dividend has put pressure on system liquidity,” said a PSB treasury head.
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Interest rates of both certificates of deposit (CDs) and bulk deposits are expected to stay elevated, as banks will make an effort to boost their balance sheet before the end of the financial year (on March 31).
On Tuesday, banks raised CDs of Rs 11,000 crore in two-month and one-year maturity buckets. The one-year CD rates were in the range of 10-10.2 per cent; those for two-month CDs were 9.8-10 per cent.
Liquidity will further tighten after the corporate advance tax outflow scheduled by the middle of this month. Market participants estimate an outflow of Rs 50,000-60,000 crore due to this.
“The interim dividend payment and advance tax outflow will add some liquidity pressure. But the Reserve Bank of India (RBI) might ensure the deficit is not large. They might do so by conducting term repo auctions and addition repo auctions. It is a seasonal phenomena that at this time, bulk deposit rates of banks and rates of CDs go up. These go up because banks want to show growth in their balance sheet and besides, there are re-issuances of CDs which take place. These rates will cool down in April,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
However, CD rates softened a bit on Wednesday, though the softening is seen as temporary. Canara Bank raised two-month CDs at 9.77 per cent and Punjab National Bank one-year CDs at 9.72 per cent. “As maturities are coming up in liquid and liquid-plus funds, fund houses are buying these CDs, due to which rates cooled today (Wednesday). But this spree might not continue for long. Besides, advance tax outflow will add to liquidity pressure, which would result in short-term rates climbing up,” said Dwijendra Srivastava, head of fixed income, Sundaram Mutual Fund, on Wednesday.
According to estimates of issue arrangers, CD rates across various maturity buckets have gone up by 25-50 basis points in the past one month. Most arrangers see a further rise of 25 bps from current levels.