Banks raise Rs 26,600 cr high-cost deposits

Despite the government asking public sector banks to stay away from high-cost bulk deposits, 12 players have raised around Rs 26,600 crore between May and July from government-owned entities.

These banks paid between one and four per cent higher than the card rates that are offered to retail depositors.

In recent weeks, banks have resorted to rate hikes, citing pressure on interest margins. While the government has been asking these banks to focus on low-cost CASA or current account and savings bank account for raising deposits,  by accessing bulk deposits, banks have themselves impacted their net interest margins.

“Due to a higher average cost of funds mobilised by them through the process of bidding, the banks are unable to reduce the lending rates,” the agenda note  circulated to bank chairmen for Finance Minister P Chidambaram’s meeting with bank chiefs on Wednesday said.

In its response to the finance ministry, the Indian Banks’ Association, however, said banks have taken care that branches either stop or avoid competitive bids for bulk deposits. It has also argued that infrastructure projects necessitate mobilisation of resources from central public sector enterprises and “occasional access to bulk deposits may be necessary to tide over mismatches in deposit accretion and credit disbursal”.

It wants the CPSEs to continue inviting bids from all commercial banks and the government should reiterate its directives to CPSE. For financial institutions like India Infrastructure Finance Company and Sidbi,  which do not have access to CASA funds, IBA has suggested a special  dispensation as multilateral loans take a long time for approval and external commercial borrowings have dried up.

For IIFCL, an option suggested is to let it raise Rs 1,000 crore from the National Small Savings Fund at a rate comparable to 10-year government paper. Another Rs 500 crore can be raised from Life Insurance Corporation at 50 basis points above the 10 year G-sec rate.

Similarly, Sidbi will get access to low-cost funds on account of shortfalls in  the priority sector lending in addition to borrowing from multilateral and bilateral international agencies.

The other options for mobilising low-cost funds, which  could be considered in case of Sidbi are reinstatement of capital gains bonds, allocation of tax-free bond quota, reduction in tenure of  zero-coupon bonds and  exemption from payment of stamp duty, the note said.