State-owned banks lure IT firms with higher yields

State-run lenders are emerging as preferred bankers for top-tier technology firms by offering attractive returns, compared to their private sector counterparts.

Tata Consultancy Services (TCS), Infosys Technologies and Wipro, the top three software outsourcers in the country, have parked the majority of their deposits (65-82 per cent) with government banks.

In 2008, it was the fear of an economic slowdown that led to these firms shifting their deposits to public sector banks. This time, it is the promise of higher returns that is encouraging these firms to park their funds with state-run lenders.

“In our case, the majority of fixed deposits are in public sector banks,” said S Mahalingam, chief financial officer, TCS. The country's largest software exporter does not disclose its fixed deposit balances with individual banks on a periodic basis.

“There is certainly no policy that prompts us to make more investments in public sector banks. When it comes to choosing banks for fixed deposits, the driving factor is which bank offers us better yields,” Mahalingam said.

His views were echoed by a senior Wipro official, who requested anonymity, since he was not authorised to speak to the media. Better rates offered by public sector banks encouraged Wipro to increase its share of deposits in these banks to 81.1 per cent as of June 30 from 66.8 per cent in the last quarter. Wipro, India's third-largest software outsourcer, parked Rs 29,654 crore of its total deposits of Rs 36,576 crore with state-run banks. The company parked Rs 14,843 crore of deposits with Bangalore-based Canara Bank, the maximum parked with any single bank.

“It is a combination of a number of factors like returns and risk appetite. Even among public sector banks, we work with banks that give us better returns. It is not that the rates offered by private banks are significantly lower, but currently, public sector banks are offering higher returns,” the official said.

Infosys Technologies has a similar story to tell. While the company preferred ICICI Bank the most, a total of 66.2 per cent of its deposits were kept with government-owned banks. ICICI Bank accounts for the largest share (11.4 per cent) of Infosys' total deposits (Rs 14,799 crore). The country's second-largest software outsourcer, however, preferred Punjab National Bank, Bank of Baroda and Bank of India over any other private sector bank.

“Our investments in fixed deposit accounts are guided by the yield we get from banks,” V Balakrishnan, chief financial officer, Infosys, told Business Standard earlier this month.

The difference in yields offered by public sector banks and private banks on wholesale deposits was not immediately known, since these rates are negotiated between banks and companies confidentially. Analysts said banks which need funds would be more aggressive in getting these deposits and can offer rates up to 25 basis points higher than their rivals.