The finance ministry has directed public sector banks to focus on low-cost deposits by boosting their current account-savings account (CASA) portfolio. In a bid to adhere to their targets on growing deposit bases, most banks have witnessed a surge in high-cost deposits.
Insiders said that the interest outgo for public sector banks has gone up by at least 30% due to the growth in high-cost deposits.
?The scenario on deposits is being closely monitored and this is an area of concern for the government as the PSU banks have done a window dressing on their deposit targets by raising high-cost deposits,? a source said, adding that the focus should be on tapping fresh and new consumers to grow their CASA portfolio.
Insiders said that with the eventual slowdown of credit growth banks are saddled with high-cost deposits, which in turn would have an impact on the profitability of the banks.
Sources said that under finance ministry?s pressure, most banks came out with attractive offers by increasing interest rates to up to even 10% on three-year fixed deposits during January-March 2007.
?The impact of this would be felt during the current financial year as the credit growth has since then slowed down from 30% seen earlier,? bankers pointed out.
Sources indicated that the forthcoming Budget is likely to spell out more sops for consumers in order to give a fresh thrust to deposits.
In the previous Budget, finance minister P Chidambaram announced the ceiling for tax deduction at source (TDS) for fixed deposits was increased to Rs 10,000, from Rs 5,000, in a bid to boost deposits.
However, insiders said that to push deposit growth, bank deposits must be brought on par with mutual funds and exemption of tax deducted at source (TDS) as a whole should be exempted by the government.
Chidambaram will hold a review meeting on January 4 to assess the current status of the PSU banks. The issue of deposit growth is slated to be taken up in the meeting.