Deposits decline, as banks shed high-cost money

Deposit growth moderated, as banks paid off high-cost bulk money to lower the cost of deposits and maintain margins in the coming quarters.

According to data released by the Reserve Bank of India (RBI), annual deposit growth dropped to 15.2 per cent as on October 21 from 19 per cent at the end of September. Deposits fell by around Rs 90,000 crore in the period.

“We will shed Rs 4,000 crore worth of bulk deposits in the current quarter, and this bring down the cost of deposits and help maintain NIMs (net interest margins) at around three per cent,” said M V Tanksale, chairman and managing director, Central Bank of India.

 

As on September 30, bulk deposits constituted around 30 per cent of the bank’s total deposit base.

Banks had raised interest rates on term deposits, attracting a higher flow of funds from retail depositors. This, coupled with lower-than-expected credit offtake, improved liquidity for banks.

Banks' dependence on bulk deposits is expected to reduce further. While term deposits grew 19.7 per cent, demand deposits fell 13.75 per cent as on October 21, compared to the same period of the last financial year.

Typically, banks take short-term bulk deposits to shore up balances and meet business targets at the end of the quarter. “Deposits usually shoot up towards the end of a quarter and then fall, as banks do not renew them on maturity,” said a treasury official of a public sector bank.

Festive season loan offers from banks failed to attract borrowers, as credit growth also eased. Data showed annual growth in bank advances fell to 19.28 per cent as on October 21.