India Inc's deposits lose out amid better liquidity

Banks refusing bulk deposits even at interest rate offered to retail depositors

India Inc’s excess cash, which used to fetch double-digit returns if deposited in banks until recently, is finding very few takers — thanks to a significant improvement in the liquidity situation.

The liquidity deficit in the system came down significantly last week — from a high of Rs 90,000 crore to around Rs 10,000 crore — because of a host of reasons, including banks beginning to avail themselves of export refinance credit after the Reserve Bank of India increased the limit recently.

On the back of this improved liquidity, banks have stared refusing bulk deposits even at card rates — the interest rate offered to retail depositors.

Some banks are not accepting bulk deposits of more than Rs 10 crore from one customer. Banks were paying around 9.5 per cent interest on three-month deposits until recently, but now that rate has come below nine per cent.

Bankers say they are also going slow because of the absence of large credit disbursement needs. “Credit offtake is really low. We are not showing any interest in bulk deposits even at rates prevailing in the money market,” said the chairman and managing director of a public sector bank.

For over nine months, the daily net injection of liquidity by the RBI through the liquidity adjustment facility ranged from Rs 70,000 crore to Rs 1.9 lakh crore.

However, banks have been drawing only Rs 10,000 crore over the last few days. Bankers say export credit refinance from the RBI, foreign fund inflows and increased government spending have improved the earlier tight liquidity situation.

The RBI had enhanced the limit of the export credit refinance facility for banks from 15 per cent to 50 per cent, which made banks access Rs 30,000 crore of additional liquidity support at the repo rate of eight per cent.

“After the increase in the ceiling for refinance on export credit, banks have drawn about Rs 25,000 crore from that window,” said Pradeep Kumar, deputy managing director (global markets) at State Bank of India.

“Other than export refinance, foreign fund inflows in the form of investments and increased government spending have helped ease the liquidity pressure,” said Ajay Marwaha, executive vice-president and head of trading at HDFC Bank. He expected the liquidity deficit to be around Rs 60,000-65,000 crore, going forward. “We have seen some retail deposits come back, which is a positive sign,” he added.

Pawan Bajaj, general manager-treasury at Bank of India, said banks were taking bulk deposits only to roll over the existing maturities since credit expansion was slower than expected.

“Government spending has brought in about Rs 22,000 crore. The near-surplus situation is likely to stay till the first-quarter review of monetary policy scheduled for end-July,” said N S Venkatesh, head of treasury, IDBI Bank.