With better returns offered by tax free bonds and liquid mutual funds, State Bank of India has witnessed flight of deposits of over Rs 15,000 crore in last few weeks.
The country’s largest bank was seating on surplus funds of Rs 55, 000 crore. There has been depletion of about Rs 15,000 crore in the recent past as depositors have moved money into tax free bonds and liquid MFs, its chairman Pratip Chaudhuri said.
The movement is basically happening on account of tax and other benefits that MFs and tax free bonds offer. It (tax sops) works to the disadvantage of deposits as financial instrument, he said.
Chaudhuri said individuals as well as high networth customers have pulled out money.
Another SBI official said there is hesitation to use money from term deposits. Depositors have taken out part of amounts in current accounts and savings (CASA) to deploy tax free bonds and mutual funds.
Prithvi Haldea, chairman and managing director, Prime Database group, said the tax free bonds are of interest only to those in high income tax bracket. Else, the interest is limited in such instruments.
The institutions allowed to use tax-free bonds, have raised over Rs 3,300 crore through private placement of these bonds till date in 2012-13. Through public issue of bonds Rural Electrification Corp has raised Rs 2,017 crore while India Infrastructure Finance Corporation Ltd mopped up Rs 2,883 crore, according to Prime database.
SBI chairman said now the most of fund raising through tax free bonds by institutions is over. There may be stability (for deposits flows) in the balance period of the financial year (Till March 2013).
For SBI, the share of low cost deposits (CASA) in total deposit base declined to 44.95% in September 2012 from 47.43% at end of September 2011.
The year on year deposits growth is about 17% till end of December, similar to annual credit growth till end of the third quarter, SBI chief said.
The increasing gap between pace of credit expansion and deposit growth has been matter of worry for banking regulator and banks in 2011-2-13.
The pace of annual deposit growth for Indian banking industry has moderated to 13.3% till mid of January 2013 from 16.7% a year ago, according to Reserve Bank of India said.
