Banks may get more time to shed bulk deposits

Finance ministry may extend deadline on case-to-case basis

The finance ministry might give public sector banks more time to shed their high-cost bulk deposits on a case-to-case basis, bankers who recently met senior government officials told Business Standard.

A few state-run banks that had large base of bulk deposits had approached the government seeking more time to reduce these deposits. The finance ministry had asked state-run banks to cap bulk deposits at 10 per cent of total deposits by the end of this financial year.

From 2013-14, the ceiling will be increased to 15 per cent but will also include certificates of deposit.

“It (the extension of the deadline) will vary from bank to bank, depending on their asset-liability position. There is no formal communication yet. But we were told that the ministry is assessing the situation and may offer more time to banks on a case-to-case basis,” a banker familiar with the development told Business Standard, requesting anonymity.

Bankers pointed out that there have been instances when the government or the central bank had offered select banks more time to meet new regulations.

For instance, in 2010 the Reserve Bank of India (RBI) allowed State Bank of India and ICICI Bank more time for increasing their provision coverage ratio.

On bulk deposits, the finance ministry had clarified that only those corporate deposits where banks are paying higher interest than the card rate should be classified as bulk deposits.

According to RBI’s definition, however, bulk deposits are corporate deposits that are generally Rs 1 crore and above with maturity of up to one year.

“We are re-computing the share of our bulk deposits after we received the clarification from the ministry. According to the ministry’s definition, the proportion of our bulk deposit base will be lower than what we had earlier estimated. This will help us to meet the 15 per cent cap within the given timeline,” said another banker.

The ministry may offer some more time if banks fail to reduce the share of its bulk deposits by March 2013, he confirmed.

The central bank and the finance ministry had expressed concerns over exorbitant rates offered on bulk deposits.

In March, bulk deposit rates crossed 12 per cent. The ministry and RBI had asked public sector banks not to bid for bulk deposits.

The share of bulk deposits in total deposits of public sector banks is estimated to be around 20 per cent.