Raising funds: Banks hit the panic button

Be it promotional schemes like 500-day and 1,000-day deposits, free insurance or gifts, banks are using all their marketing skills to attract savings.

Slow accretion of deposits, accompanied by high credit demand, has forced banks to raise funds through fixed deposits (FDs) to balance their asset-liability portfolio. Branches have been given steep targets to achieve the desired growth rate.

For instance, Punjab National Bank has asked its branches to open 1,000 accounts each under the 555-day scheme by March.

Many banks came out with such schemes this month after the first round of increase in interest rates failed to expand their deposit base.

Banks are also monitoring the deposit growth at each branch on a daily basis. “We are monitoring deposit growth daily and can see some improvement,” said a senior State Bank of India (SBI) official.

Same is the case with Central Bank of India. “We have deployed a single window system to open fixed deposits and are monitoring growth on a day-to-day basis,” Chairman and Managing Director S Sridhar said.

Both banks said the special 500-day deposit scheme had witnessed a relatively better response. Special schemes offer higher interest rates than routine FDs of similar maturity.

For example, SBI has launched a 555-day term deposit scheme which is offering nine per cent a year. In contrast, the rate for deposits maturing between a year and 554 days is 8.25 per cent. The rate for the 1,000-day deposit is also nine per cent.

Union Bank of India has collected around Rs 7,000 crore from these special schemes within two months. The 700-day scheme was launched in December, followed by a 1,100-day deposit in January.

“To maintain the competitive spirit at all levels, we recognise and announce the best performers in our fortnightly bulletin,” General Manager S Govindan said.

To meet targets, banks are encouraging existing customers to renew deposits under the new schemes. “We call up customers with fixed deposits in maturities similar to our new schemes and ask them to renew their deposits,” said the branch manager of a small private sector bank in Mumbai. There was no pre-mature withdrawal penalty, provided the deposit was renewed with our bank only, he added.

“Around 70-80 per cent of deposit growth is coming from renewals,” said R K Dubey, executive director, Central Bank of India.

After rate increases of around 250 basis points in the last three months, the peak rates on term deposits have reached 9.5 per cent, while smaller players like Lakshmi Vilas Bank are offering 9.75 per cent on 600-day deposits.