In a significant move, the finance ministry has issued a directive instructing all government departments and ministries to park with public sector banks at least 60% of the funds under their control and distributed by them to PSUs and state government agencies. The move is aimed at helping nationalised banks garner significant business over their private sector counterparts.
Simultaneously, the finance ministry has also directed government departments and PSUs to discontinue the practice of inviting competitive bids for bulk deposits with banks. This, according to the finance ministry, resulted in undesirable competition amongst banks, thereby leading to arbitrary hikes in deposit rates (even in the short term), which has consequences on the economy. Bulk deposits should be placed with the banks conducting their regular business, the ministry said.
While the finance ministry?s directive (of January 15) has not named any particular department or ministry, it said, ?It has come to the notice of the government that some ministries as well as entities under their control have transferred their entire business or a substantial part of the business to private sector banks to the virtual exclusion of public sector banks.?
The letter stated that as public sector banks had ?a special role and importance in the banking industry and in advancing the economic policies of the government, it is important that departments/ministries conduct their business, as far as possible, through public sector banks?.
When approached by FE, senior officials with Navratana PSUs like NTPC and ONGC said they already placed around 80% of their cash reserves with nationalised banks. One ONGC official said it had parked 80% of its cash balances of Rs 15,000 crore with nationalised banks, based on Crisil?s credit rating. An NTPC official also said that a majority of the company?s cash surpluses were lying with State Bank of India and 89% of its deposits were with PSU banks.
For its part, the finance ministry has made it clear that under no circumstances was it desirable for any department or ministry to conduct its business through private sector banks alone. ?Funds under the control of departments/ministries or funds amenable to their control shall at least to the extent of 60% be placed with public sector banks,? the letter stated.
