Public sector lender Bank of India (BoI) raised interest rates on select bulk deposits on Thursday, to retain its deposit base even as the government wants all public sector banks to cut their bulk deposit portion to 15% of total deposits by March end.
BoI raised interest rates on deposits worth R10 crore and above by 25 basis points to 9%. In a notification to the stock exchange, the bank said it has raised rates on bulk deposits which fall in the maturity period ranging from one year and above to less than two years.
Some of our high cost deposits are maturing soon and we wanted them to retain their deposits with us. Many private sector banks are offering 9-9.2% in these maturities, so we wanted to get closer to the market rate, said a senior official at the bank on request of anonymity.
However, the official also said the bank is not very confident of retaining their bulk deposits even at these rates.
In July this year, the finance ministry had issued a circular to the state-run banks asking them to cap bulk deposits at 15%, which included 10% of deposits above the card rate and 5% of certificates of deposits (CDs). Financial services secretary DK Mittal had said large amount of bulk deposits is a risk to the banking system. The move was aimed at improving PSBs asset-liability management. It also followed rush for these high-cost deposits, especially by PSBs, during January-March quarter. It had resulted in short-term rates shooting.
Bank of India is confident of reducing the concentration of normal bulk deposits to 10% by March 31. Currently it stands at around 12-13%, the official from the bank said.
As on December 14, banks deposits grew by a sluggish 13.35% y-o-y to R64,33,934 crore. In the second quarter review RBI projected deposit growth of 15% for the entire banking system.
Barring State bank of India, which has excess deposits, most banks in the country are facing a liquidity crunch, which has compelled some of the banks to raise their deposit rates. On Monday, Federal Bank and Dena Bank had raised retail deposit rates by 25-50 basis points on certain buckets to attract more customers to park their funds with the bank.