Bulk deposit rates breach 8%.
A timid growth in deposits in the current financial year has forced banks to tap the certificates of deposit (CDs) market in a big way to shore up top lines and meet targets ahead of the quarter-end. CD issuances, which were anyway growing over the last fortnight or so, were around Rs 9,000 crore on Tuesday — more than double the Monday’s level. A bulk of the funds was raised through the short-term instrument, as over Rs 5,000 crore was raised by banks issuing three-month CDs.
State Bank of India (SBI), the country’s largest lender, raised Rs 1,325 crore at 7.04 per cent on Tuesday. In addition, UCO Bank, Central Bank of India, Punjab National Bank, Canara Bank, Bank of India, Allahabad Bank and Bank of Maharashtra also raised short-term funds. Interest rates for three-month CDs were between 7.04 per cent and 7.19 per cent. Corporation Bank raised four-month CDs at 7.40 per cent, while Bank of India raised one-year CDs at 8.05 per cent.
| QUARTER-END RUSH Some of the banks which raised funds via 3 month CD today | |
| Bank | Amount |
| PNB | 1,430 |
| SBI | 1,325 |
| UCO Bank | 1,000 |
| BoI | 500 |
| Allahabad Bank | 400 |
| Canara Bank | 400 |
| BoM | 200 |
| Source: Reuters (Rs Crore) | |
On Monday, short-term money market instruments worth around Rs 3,165 crore were placed – a little less than the Rs 3,500 crore placed last Friday. Bankers expect CD issuances to increase during the remaining part of the current quarter.
They also said the rush for funds was not because of demand, as credit growth was yet to pick up. “The rush is mainly because banks have to meet quarter-end targets and show improved top lines,” said the treasury head of a large public sector bank.
While credit growth is in line with the Reserve Bank of India’s projection of 20 per cent for 2010-11, deposit growth has been slack so far at 14.44 per cent for the year to August 27 — far below the central bank’s projection of 18 per cent. The lackluster growth in deposits is mainly due to unattractive rates. And with inflation still close to a double-digit figure, real rate of returns for depositors is in the negative.
“One important consequence of negative real rates is that banks have seen a deceleration of deposit growth, as savers look for higher returns elsewhere. If bank credit is not to become a constraint to growth, real rates need to move in the direction of encouraging bank deposits,” the central bank had said during its mid-quarter review of the monetary policy.
According to dealers, the rush is also evident for corporate bulk deposits. Market participants said SBI, Oriental Bank of Commerce and UCO Bank were some of the lenders that were raising bulk deposits of more than Rs 100 crore. At present, one-year bulk deposit are 8.14-8.17 per cent, compared to 7.90 per cent a month ago.
The base rate of public sector banks – the new loan pricing mechanism mainly based on cost of deposits – is between eight and 8.25 per cent, barring SBI and Corporation Bank, which had set their base rate at 7.5 per cent and 7.75 per cent, respectively.
