Bulk deposit rates shoot up as banks scramble for cash

The liquidity situation may be comfortable, but banks have started building up their balance sheets ahead of the financial year-end to meet yearly targets.

This has resulted in a spike in bulk deposit rates as banks are offering as much as 9.4-9.6 per cent as compared to the card rate of 9 per cent for one-year deposits. Bulk deposits are typically Rs 10 crore (Rs 100 million) and above.

Canara Bank, for example, has sealed a Rs 500-crore (Rs 5 billion) bulk deposit deal of one-year maturity with an Andhra Pradesh-based PSU for 9.61 per cent. Similarly, Bank of Baroda offered 9.41 per cent for a Rs 200-crore deal. The card rate for deposits of similar maturity is 9 per cent.

Banks have taken this aggressive posture even as liquidity has become comfortable on the back of increased government spending.

On Wednesday, banks borrowed close to Rs 21,000 crore (Rs 210 billion) from the repo window, the lowest in the last month and a half, while borrowing from the marginal standing facility (MSF) was a mere Rs 395 crore (Rs 3.95 billion) on Tuesday. In the last one month, the daily average borrowing under the MSF was below Rs 4,000 crore (Rs 40 billion) as compared with almost Rs 10,000 crore (Rs 100 billion) a month ago.

Some banks say deposit mobilisation will be required to meet credit demand, which is expected to peak in the last quarter of the financial year.

Manipal-based Syndicate Bank has announced a 25-bp hike in its retail deposit rate across some maturities and launched a new deposit scheme offering 9.25 per cent for 444 days.

“Some of our deposits are coming up for renewal. In addition, there is credit demand in the pipeline, which will be disbursed in the current quarter,”

said S K Jain, chairman and managing director, Syndicate Bank. The public sector lender is focusing more on retail deposits as it has almost stopped accepting bulk deposits from corporate houses, which come at a higher cost.

Bankers are worried that the comfortable liquidity situation could change next month due to a series of factors. Apart from companies starting to pay advance tax next month, the government will also control its expenditure to meet the fiscal deficit target of 4.8 per cent. Liquidity will also tighten due to the spectrum auction, which is seeing an encouraging response.

“The government will be spending to the extent of the receipts it gets," said R Sivakumar, head of fixed income and products, Axis Mutual Fund. "During the advance tax week, there will be some kind of liquidity outflow from the system but immediately thereafter they may be spending. So on a net basis we do not expect the government flows to emerge as a big change in liquidity. We have also seen additional comfort from the RBI. For example, in December, it increased the size of the term repo to take care of advance tax outflows. So, the RBI may step in to infuse liquidity if we see very tight liquidity conditions,” he said.

Overnight rates are currently at levels near the repo rate, which was raised by 25 basis points to 8 per cent in January.

Dash for the cash

• Spectrum outflow and advance tax have left banks worried about liquidity ahead of the financial year-end
• Banks are offering 9.4-9.6% as compared to the card rate of 9% for one-year deposits
• Some banks say deposit mobilisation will be required to meet credit demand, expected to peak in the last quarter