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NHAI bond helps banks expand current account deposits

ICICI, HDFC, Axis benefit from highway authority?s over-subscribed Rs 10,000-crore bond

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The euphoria over the National Highways Authority of India’s (NHAI) bond issuance not only allowed the public sector entity to raise money for financing its operations, but also benefited banks by helping them expand their low-cost deposit base.

While mobilisation of (current account savings account) deposits has been challenging for banks in the current environment of high-term deposit rates, the current account balances of top lenders like Bank, Bank and Bank increased in the last quarter — primarily because of flows related to bonds.

For ICICI, the country’s largest private-sector lender, the growth in current account deposits in the third quarter nearly doubled from a quarter ago. In October-December, the bank added Rs 7,042 crore deposits in the current account compared with Rs 3,220 crore in the previous three months.

In comparison, the growth in the bank’s savings deposits in the last three months has been slower. It added Rs 3,349 crore savings deposits in the previous quarter.

“The increase in current account deposits included the impact of greater float on account of NHAI bond issuance related flows,” said a senior executive of ICICI Bank after the lender announced its third quarter earnings yesterday.

It has also helped ICICI Bank improve its CASA deposits’ share in total deposits to 43.6 per cent as of December-end, from 42.1 per cent a quarter ago. For 2011-12, the bank expects to maintain the average CASA ratio at about 40 per cent. Rival HDFC Bank, too, has benefited from the exuberance related to NHAI bonds. The bank is believed to have received around Rs 4,000 crore of current account deposits that were related to NHAI bond issuance.

The bank in its third quarter earnings release had said core CASA deposits “adjusted for one-off current account balance of approximately Rs 4,000 crore was at 47.7 per cent of total deposits as at December 31, 2011”.

Even for Axis Bank, the NHAI bond issuance appears to have aided the lender’s current account deposits. The private-sector bank’s current account deposits rose 47 per cent year-on-year last quarter, while savings deposit growth was only 21 per cent. The CASA ratio of the bank improved to 42 per cent as of December-end.

Analysts and bankers said other large lenders, including State Bank of India (SBI), are likely to have witnessed growth in current account deposits primarily because of NHAI’s bond issuance. SBI is yet to detail its third quarter earnings.

It was in December last year that the Rs 10,000-crore bond issuance of NHAI opened for subscription. The bonds were oversubscribed by 2.5 times. In other words, investors put Rs 25,000 crore in banks to subscribe these bonds. The banks will now refund Rs 15,000 crore to investors.

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