C. Shivkumar

Public sector banks prefer to raise the resources through bulk deposits, as they are cheaper than CDs and are exempt from stamp duties. Also the administrative costs on bulk deposits are lower than that on retail deposits.

Bangalore , Jan. 26

TIGHT liquidity conditions are prompting banks to source bulk deposits from cash-rich corporates and public sector undertakings at rates above 7 per cent.

Bankers said that the high rates being offered were in view of the big ticket deposits. In fact, some of these corporates preferred parking their surpluses in public sector banks offering the best deposit rates. The rates offered, usually through the bid route, are higher than what is currently being offered to retail deposits or small bulk deposits of up to Rs 2 crore and above. The maximum rates on retail deposits for maturities up to five years are just about 6 per cent and on normal bulk deposits seldom exceed 6.5 per cent.

Till last year, many of the corporates were parking their surplus cash in Treasury-bills and Government securities for maximising non-core earnings. The preferred T-bills, sources said, were mostly 91-day and 364-day in view of their high liquidity.

This was a major factor that contributed to keeping the non-competitive bid prices on T-bills lower than the cut-off prices.

Move out of T-bills: But bankers said that since the beginning of this year, several corporates had begun shifting out of T-bills. This was for generating higher returns on their investments. The 91-day T-bill yields at the last auctions were 6.20 per cent and the 364-day bill yields were 6.3 per cent.

The bankers said that in addition to large corporates, non-life insurance companies and middle-rung corporates, especially information technology companies, are shifting their resources to bulk deposits. Non-life insurers are parking their funds in such deposits in view of the liquidity and for realising a higher mean yield on investments.

These entities had till recently parked their surpluses in certificates of deposits (CDs) floated by some of the private sector banks that had offered returns of up to 7 per cent for 90 days and above.

CDs shunned: However, bankers said, few banks were interested in raising funds through CDs.

The deterrent to CDs were high stamp duties. Besides, the reserve ratios are also applicable to CDs on the basis of their issue prices. Accordingly, floating a CD drove up the cost of working funds substantially.

Public sector banks preferr to raise the resources through bulk deposits, as they are cheaper than CDs. Bulk deposits are exempted from stamp duties. In addition, the administrative costs on bulk deposits are also lower than that on retail deposits.

The bankers said that bulk deposits are essentially long-term funds. Although the maximum maturity seldom exceeds six months, the deposits aree expected to be renewed.

Moreover, bankers said that barring CRR, banks are not maintaining any statutory liquidity ratio on bulk deposits.

This is because most of them already have investments in SLR securities of close to 39 per cent, way above the prescribed limit of 25 per cent.

Bankers said that the funds are mostly deployed in credit, in particular farm and SME advances.

In both these sectors, the lending rates are above 9 per cent, allowing banks to realise spreads of at least 2 per cent.

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