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C. Shivkumar

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Bangalore March 5 Faced with sustained high credit demand, banks have now begun to slug it out for mobilising funds through bulk deposits.

Sources said the some of the banks were offering rates of over 11 per cent for raising large bulk deposits from corporates, insurance companies and public utilities for maturities of up to a year.

In January, these rates were hovering around nine per cent. The high rates were offered mostly by some large private sector banks, in a bid to garner deposits. These rates are very close to the benchmark prime lending rates (BPLR) that currently ranges between 11.50 per cent and 14 per cent.

For pushing up rates, bankers said corporates used the bid route, taking advantage of the liquidity situation in the markets. The high rates have prompted several corporates and State governments to quietly begun move funds into bulk deposits.

In January alone, at least Rs 1.26754 crore of money market mutual funds were redeemed, according to data from the Association of Mutual Funds of India. The switch was also influenced by the differential returns that favoured bulk deposits.

Credit offtake

Bankers said the funds were largely raised to sustain the high credit offtake growth. Credit is currently growing at close to 30 per cent. This time though the credit growth is propelled by farm and industrial sectors. This rate of growth is expected to be sustained, supported by the Finance Ministry's thrust to these sectors in the recent Budget.

In fact, since late last year, Finance Ministry officials and the Reserve Bank of India have been informally conveying to banks to refocus and rebalance lending portfolios in favour of farm and the productive sectors of the economy, including infrastructure.

Public sector banks were, however, staying away from the cut-throat competition for bulk deposits. Syndicate Bank Chairman and Managing Director, Mr C.P. Swarnkar, said, " We do not want to take high cost funds, when alternatives are available."

PSU banks are instead focussing their resource mobilisation on low-cost CASA (Current and Savings accounts) funds.

More Stories on : Private Banks | Fixed Deposits

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