The huge rush for deposits is no longer limited to the last fortnight. The race for garnering large deposits, at high costs, began in early January. | |
| Banks' chase for expensive liquidity has led to some of them stacking up their resources kitty with very large deposits from big companies, including public sector units. Wholesale deposits constitute up to as much as 20 per cent of term deposits in several banks. |
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| Some banks, particularly some nationalised banks, according to analysts, are in such a dire need of funds that the upper end of the interest rate range in the inter-bank term money market is in double digits for over two months now. The interest rates in the inter-bank term money market were 8.74-11.10 per cent on January 12. |
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| The term money rates did not cool down even after the Reserve Bank of India (RBI) last week capped acceptance of bids at its reverse repo windows to just Rs 3,000 crore a day, when the average daily absorption in the earlier week was over Rs 22,000 crore. |
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| The central bank move had led to the inter-bank call money and notice money rates dropping below the reverse repo rate of 6 per cent. Banks borrow funds for up to one year in the term money market, for up to 14 days in the notice money market and for one day in the call money market. |
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| The RBI has cautioned banks having high concentration of wholesale deposits that they should be aware of the potential associated risks and to frame policies to contain the liquidity risk arising out of excessive dependence on such deposits. |
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| A private sector banker said "the key difference in the year-end rush for wholesale deposits this time is that nationalised banks are driving up the rates, while the traditional private sector and foreign banks are in greater comfort." |
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| Large companies are also seeking to take advantage of the frequent rise in interest rates on deposits, causing volatility in the deposits of banks. Companies which had deposited surplus funds about six months back at 6-7 per cent interest are doing "deposit hopping" to benefit from the rising rates. |
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| These large depositors rake in substantial amounts in returns even after adjusting for the penalty they pay for withdrawing deposits before maturity. |
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