Bulk deposit rates to stay volatile as banks try to meet FY18 targets

In the past few months, the market has seen most major banks raising their retail and bulk deposit rates, as well as their lending rates, to reflect the tight liquidity condition in the market

Bulk deposit rates are like to stay volatile this month as banks seek additional resources to meet the targets for the 2017-18 financial year.

Private-sector lender HDFC Bank is the latest bank to tweak its bulk deposits rates. It cut deposit rates by up to 100 basis points (bps), while public-sector counterpart State Bank of India (SBI) and Punjab National Bank (PNB) raised theirs over the past three-four months.

These revised rates (reduction) by HDFC Bank were applicable from March 6. However, the bank had also previously raised deposit rates in February and the new rates were applicable from March 5, 2018. The effective rates, thus, changed within a span of a day. The bank declined to disclose the reason for these rate changes.

The bank said that 61- to 90-day bulk deposits would earn an annual interest rate of 6 per cent, down from 6.75 per cent earlier. Bulk deposits of more than six months but less than a year would now earn 6.5 per cent, up from 7 per cent.

Bulk deposits are those that equal or are more than Rs 50 million.

The market saw most major banks raising their retail and bulk deposit rates, as well as their lending rates, to reflect the tight liquidity condition in the market in the past few months.

Bankers said liquidity was becoming tight in the system, so banks had little choice but to raise rates upwards when competition was intensifying, to attract funds. There is a pick-up in credit demand and as the system enters the last month of the financial year (2017-18), so the activity will be elevated.

SBI has revised the bulk deposits on three occasions since November 2017. On February 28, 2018, it raised its interest on bulk deposits above Rs 10 million by 25-75 basis points across maturities. On January 30, 2018, it raised the interest rate on domestic bulk term deposits by 75-140 basis points. Earlier, it had raised bulk term deposits by one percentage point (100 basis points) in November 2017.

A further hardening is likely to be less steep as the Reserve Bank of India has announced that it will conduct four additional auctions this month to buy back securities and infuse up to Rs 1 trillion into the system.

“Now, with RBI announcing term repos, the concern related to funds would be lower. Banks seeing good credit growth might still want to shore up deposits. So, some further increase in bulk deposit rates are not ruled out,” said a senior SBI executive.

Karthik Srinivasan, group head (financial sector), ICRA, said the banks were also trying to raise their liquidity coverage under Basil-III norms by raising money in the short tenure.  

“The systematic liquidity in the economy is neutral with RBI sucking out the surplus liquidity present two-three months ago. So, there has been a pick-up in credit," said Srinivasan, adding that RBI’s recent liquidity infusion would bring greater liquidity and stabilisation.  

Banking experts also said that the increase in deposit rates signalled a rise in lending rates as well. SBI, PNB and ICICI Bank hiked their respective lending rates in the past week, following other private banks like Axis Bank, HDFC Bank and IndusInd Bank. "Interest rates are going up and will continue to go up; only timing is to be seen,” said Srinivasan.