Public sector banks are likely to witness a 30-35% increase in interest payment to depositors in 2007-08, due to a surge in high-cost deposits. Bank CEOs said each bank might have to cough up an additional Rs 800-1000 crore of interest this fiscal, depending on its high cost deposit portfolio, which has reached a level of about 18-20% of the total deposit portfolio. Earlier, high cost deposit comprised about 10-12% of the total deposit portfolio.
The higher interest payment may have an impact on the profit margins as well.
Most PSU banks, in a bid to increase their deposit bases, raised interest rates for bulk and fixed deposits during the January to March quarter of 2006-07. ?The banks are now feeling the heat as credit growth has slowed down and they are saddled with high cost deposits. This has become a serious cause for concern,? a PSU bank CEO told FE. However, he said that a clear picture would emerge only after the close of the financial year.
Sources added that bank top brasses increased interest rates to lure customers in order meet deposit targets, projected in their statements of intent.
The government has introduced performance based incentive scheme for PSU bank CEOs. Their performances are assessed on their achievement of their set targets as given in the SOI.
The finance ministry, it is understood, has already warned the banks not to increase their deposits that would be high-cost. ?The government is keeping a close watch on this and the focus should be to increase the current account-savings account portfolio,? a source pointed out.
PSU banks have registered a 23.9% growth in deposit during the April to December period. In the review meeting, held last week, finance minister P Chidambaram said that he was satisfied with the growth in deposits.
?We have to take this into account and be careful in the future,? an insider said.