Liquidity tightening is hurting banks like never before. Public sector banks, which were hesitating to pay 10 per cent interest on bulk deposits only six months ago, are now offering 11.5 per cent interest on deposits of Rs 5 crore and above.
The interest rate now is 10.5-11 per cent on deposits of Rs 1-5 crore as against 9 per cent earlier, and it is 10.5 per cent for deposits up to Rs 1 crore in place of 8.5-9 per cent earlier, according to the branch manager of a large public sector bank.
The situation is no different in other banks. The Delhi Development Authority (DDA) is a case in point. Application money was financed by banks at 10 per cent interest rate, but the DDA was seeking 11.5 per cent for depositing the same money in banks, said a senior official of another public sector bank.
In fact, public sector banks, including State Bank of India, have raised resources at 11-11.5 per cent interest from the market to lend to state-run fertiliser companies at 13.75 per cent. Under an arrangement facilitated last month by the Finance Ministry and the Ministry of Steel and Fertiliser, SBI would contribute Rs 12,000 crore loan out of a total of Rs 20,000 crore being provided by public sector banks to bail out fertiliser companies hit by liquidity crunch, a banking industry source said.
“Cheap sources of funds are drying up. Even public sector firms are not paying heed to government advice to park 60 per cent of their surplus funds in public sector banks,” said a banker.
The Current and Savings Bank Accounts (CASA), which most banks target, are also no longer cheap. Though the official rate is 3.5 per cent, most banks are now offering 6-7 per cent interest on balance of over Rs 25,000.
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A couple of months ago, the Finance Ministry had asked public sector banks to stop accessing bulk deposits, which were high cost. It had pulled up banks that had raised around Rs 26,000 crore in the early part of 2008-09 by offering 100-400 basis points more than the card rate.
The high-cost deposit rate means loans for industry has shot up. Banks are now giving credit at the benchmark prime lending rate (BPLR), which hovers around 14 per cent for public sector banks. The loans to companies used to be 2-3 percentage point lower than the PLR.