BoB to shed Rs 18,000 cr bulk deposits by March

Will bring stability to funding profile, improve interest margins

The public sector lender Bank of Baroda (BoB) plans to shed bulk deposits worth Rs 18,000 crore by the end March to bring stability to funding profile and improve interest margins.

The outstanding bulk deposits have already declined to Rs 50,000 crore by January end from Rs 57,000 crore in December 2012.

Senior BoB official said the share of bulk deposits may decline about 10% which is even below the floor level indicated by the government to state-owned banks. The government had asked public sector banks to bring down share of bulk deposits to 15% by March 2013.

It was clear fallout of drive by then financial services sector secretary D K Mittal to rework funding profile to control finance costs and bring stability to resource profile.

Banks margins came under pressure in Q3 ended December 2012. BoB’s yield on domestic advances dipped from 12.01% in quarter ended December 2011 to 11.57% for Q3 of 2012-13. However, the cost of funds went up to 7.33% in Q3 from 6.90%. This was one of the factors that impacted margins in Q3.

The domestic net interest margins (NIM) declined to 3.08% from 3.51% a year ago. Banks expects to maintain domestic NIMs at above 3% in Q4 (ending March 2013), said its chairman and managing director S S Mundra said.

The total deposits rose by 18.8% (year on year) to Rs 4,14,733 crore. The share of low cost deposit (current and savings deposits) base in the domestic business was 32.2%.

The re-pricing of bulk deposits, which come up for maturity, in the quarter is expected to happen at lower rates as interest rates have softened.

Treasury executives across banks said the credit demand is weak so very few banks are raising money to meet March targets. So there is less pressure to raise funds at higher rates.

This time around (Q4 of FY12-13) short term bulk deposits are being raised at 8.75-9.5% band.  Last year Q4, banks were contracting short term bulk money at 10-11.15%.

The public sector lender does not expect to face any liquidity pressure while it sheds bulk deposits. BoB currently has 4-5% excess portfolio of Statutory Liquidity Ratio (SLR) securities. At present, banks have to maintain SLR ratio of 23% of net time and demand deposits.

This excess liquidity can be used to support liquidity requirements going forward, said Nomura Securities in research note.