When retail deposits are not growing enough, banks have increased their dependence on bulk or wholesale deposits to meet higher credit demand.
For example, Bank of Baroda’s bulk deposits (including certificate of deposits) grew 18.6% on year, while retail term deposits grew merely 9.8% year-over-year, as of December 31. Similarly, for CSB Bank, the numbers have been going up for the last few quarters. Currently, in the December quarter, it was 47% compared to 37% a year ago, while the share of retail deposits reduced to 53% from 61% a year ago. Even Bank of India’s share inched up to 16% as on December-end from 13% a quarter ago, and the share of retail deposits reduced to 46.38% from 47.41% a quarter ago.
Small finance banks have also raised their reliance on bulk deposits. AU Small Finance Bank’s term bulk deposits grew 41.5% on year and 6.7% on quarter, while retail deposits grew 12.8% on year and 3.3% on quarter. Ujjivan Small Finance Bank’s bulk deposits grew 39% year-on-year and 12% quarter-on-quarter.
Bulk deposits—typically large sums from institutions or corporates—come at higher costs but provide quick liquidity to banks. The Reserve Bank of India (RBI) defines bulk deposits as deposits above Rs 3 crore. Small banks, along with select larger ones, are actively engaged in this, according to industry people.
Widening Gap
As deposits growth lagged credit growth, banks are forced to depend on other avenues to bridge the gap. The gap between credit and growth widened to 251 basis points (bps) compared to an average of 171 bps during October-December. Bank credit grew 13.11%, while deposits rose 10.6% as on January 15, according to the latest RBI data. Consequently, credit–deposit (CD) ratio jumped to a multi‑decadal high of 82.17%.
“Raising bulk deposits is a necessity now. We are in the process of building our retail deposit franchise following a full tech-stack overhaul, which will take 18–24 months. Until then, we will use bulk deposits tactically, mostly for shorter tenures of 6–12 months, without locking ourselves into long-term high-cost funding,” said Pralay Mondal, MD & CEO, CSB Bank.
Banks continue to struggle in garnering low-cost CASA deposits, as the low-interest environment and investors’ shift to alternative options persist. With the sluggish deposit growth, banks have also ramped their CD issuances. Banks issued Rs 64,410 crore in CDs during the fortnight ending January 31, pushing outstanding volumes to a record Rs 5.89 lakh crore, the RBI data showed.
Rising Costs
An asset-liability management dealer at a public sector bank said they are active in both CD (certificate of deposits) and bulk deposits. “We are also depending heavily on wholesale deposits and it has grown by 7-8% in January. For one-year bulk deposits, we are now paying a 50 bps premium over retail rates—up from the earlier 20-25 bps spread due to higher competition,” he said.
An official at a private bank said that there are couple of large banks and small banks which are bidding aggressively at high rates for bulk deposits, especially after December. He added that, consequently, the pricing has increased by around 35 bps and will likely to stay elevated as advance growth will be aggressive in the March quarter.
According to V R C Reddy, treasury head at Karur Vysya Bank, structural changes in retail depositor behaviour have led to increased reliance on CDs and bulk deposits. “However, CD issuance remains constrained by rating-agency approved limits, unlike bulk deposits, which are not subject to such caps. Consequently, some banks may be increasingly compelled to tap bulk deposits in place of CDs. Bulk deposits could emerge as a relatively easier funding avenue, particularly for small and mid-sized banks, albeit at a higher cost compared to regular retail deposits and CDs issued by frontline banks,” he said.
Due to the prevailing market conditions, bulk deposit rates have also gone up. Reddy added that, one year bulk deposits are quoting at a spread of 50–60 bps over retail deposit rates currently, compared with par to 25 bps earlier.
Earlier, banks were reducing reliance on high-cost, volatile bulk deposits to protect their margins. However, if retail deposits fail to grow sufficiently, banks will have no choice but to rely more heavily on wholesale deposits. “Reliance on bulk or wholesale deposits is set to persist if credit growth continues to outpace deposit growth. The competition for deposit is driving up pricing and premiums. This would result in higher cost of deposit for banks in a tight liquidity scenario,” said Anil Gupta, senior vice President & co-group head, ICRA.