Deposits Surge May Prompt Banks To Cut Short-Term Rates

Banks are considering a downward revision of short-term deposit rates because of the impressive deposit growth of over Rs 10,000 crore in the current fiscal. At the same time, they are rejecting short-term deposits that are being placed with them by corporates. Time deposits have grown by a whopping Rs 14,125 crore while demand deposits have declined by Rs 4,045 crore between April 1 and May 23.

In contrast, deposits grew by only Rs 1,609 crore during the same period in the last financial year.

We have instructed our branches to take the approval of the head office before accepting large quantum of funds for a period of 30 days, says a senior public sector bank official.

 

The banks increased selectiveness in accepting deposits is understandable, since they have not been able to onlend the incremental resources to corporates.

While the aggregate deposits in the banking system grew by Rs 10,080 crore to Rs 5,13,675 crore between April 1 and May 23, the increase in total bank credit amounted to only Rs 1,028 crore, with non-food credit actually declining by Rs 828 crore in this period. Total bank credit stood at Rs 2,77,558 crore on May 23 this year.

With banks unwilling to lend and corporates unwilling to borrow, the principal beneficiary has been the government. Bank investment in government securities has increased by Rs 10,469 crore to Rs 2,01,561 crore.

The Bank of Baroda has seen deposits grow by around Rs 600 crore in the current fiscal. The deposit growth continues to be strong inspite of the fact that we offer only 6.5 per cent for a 30-day deposit. If the trend continues, then we will slash our deposit rates by around 50 basis points, said a bank official.

This year, the banks did not resort to window dressing while finalising their accounts for 1996-97. This ensured that there was no fall in deposits once the new financial year began. At the same time, there is a lot of liquidity in the system. This has been augmented by the inflow on account of investment by foreign institutional investors.

The lacklustre capital markets also contributed to the impressive deposit growth, since retail investors preferred to park their savings in bank deposits.