NEW DELHI: In what may set the stage for further increase in lending and deposit rates, banks are accessing two-month funds though certificates of deposit by paying almost 10%. Some banks like ING Vysya Bank have paid over 10% to raise a slightly higher amount for a little more than three months.
While bankers are unwilling to admit publicly, following the increase in deposit rates since mid-December, the flow of funds is not as high as they had anticipated. This has prompted them to raise more resources from the market by issuing instruments such as certificates of deposit (CDs), which are short-term papers subscribed to by other banks and mutual funds.
"What we have seen is that depositors are renewing their deposits and opting for maturity baskets that earn them the maximum interest rate," said an SBI executive. As a result, many depositors have moved from a one-or-two-year fixed deposit to, say, SBI's 555-day deposit that is earning 9.25% (and 9.75% if you are a senior citizen). So unlike the post-credit crisis days in 2008 when the 1,000-day blockbuster helped the bank rake in Rs 1,000 crore a day by way of deposits, the special tenures this time are fetching Rs 200-300 crore a day.
Union Bank of India CMD M V Nair said of the Rs 10,000 crore mobilized by the bank over the last two-and-a-half months, around 25% has been reinvested in special buckets such as those that mature in 500 or 700 days. RBI data showed that for the year up to January 14, 2011, bank deposits grew 16% though during the last fortnight banks mopped up over Rs 37,000 crore, the highest fortnightly mobilization since November. With banks unable to step up deposit mobilization at the same pace as credit flow several are in a situation where they are lending more than Rs 100 for every Rs 100 raised by way of deposits. As a result, bankers are raising every paisa they can even if it means paying a higher cost.
"This year-end phenomenon (of spike in rates) has been accentuated by 3G-related borrowings, tight policy conditions and slower pace of government spending," said a bank chairman who does not wish to be named. The SBI executive said credit demand apart, the high commitments some of the public sector bank chiefs have made under the annual statement of intent is adding to the pressure. Nair and Punjab National Bank CMD K R Kamath said the tight conditions were expected to continue at least till March-end. "If liquidity does not improve, banks will then have no option but to hike rates," said UCO Bank chairman Arun Kaul. Since July, when base rate was introduced as the new benchmark, banks have raised it by around 150 basis points and the consensus is that more is in store.
TOI
While bankers are unwilling to admit publicly, following the increase in deposit rates since mid-December, the flow of funds is not as high as they had anticipated. This has prompted them to raise more resources from the market by issuing instruments such as certificates of deposit (CDs), which are short-term papers subscribed to by other banks and mutual funds.
"What we have seen is that depositors are renewing their deposits and opting for maturity baskets that earn them the maximum interest rate," said an SBI executive. As a result, many depositors have moved from a one-or-two-year fixed deposit to, say, SBI's 555-day deposit that is earning 9.25% (and 9.75% if you are a senior citizen). So unlike the post-credit crisis days in 2008 when the 1,000-day blockbuster helped the bank rake in Rs 1,000 crore a day by way of deposits, the special tenures this time are fetching Rs 200-300 crore a day.
Union Bank of India CMD M V Nair said of the Rs 10,000 crore mobilized by the bank over the last two-and-a-half months, around 25% has been reinvested in special buckets such as those that mature in 500 or 700 days. RBI data showed that for the year up to January 14, 2011, bank deposits grew 16% though during the last fortnight banks mopped up over Rs 37,000 crore, the highest fortnightly mobilization since November. With banks unable to step up deposit mobilization at the same pace as credit flow several are in a situation where they are lending more than Rs 100 for every Rs 100 raised by way of deposits. As a result, bankers are raising every paisa they can even if it means paying a higher cost.
"This year-end phenomenon (of spike in rates) has been accentuated by 3G-related borrowings, tight policy conditions and slower pace of government spending," said a bank chairman who does not wish to be named. The SBI executive said credit demand apart, the high commitments some of the public sector bank chiefs have made under the annual statement of intent is adding to the pressure. Nair and Punjab National Bank CMD K R Kamath said the tight conditions were expected to continue at least till March-end. "If liquidity does not improve, banks will then have no option but to hike rates," said UCO Bank chairman Arun Kaul. Since July, when base rate was introduced as the new benchmark, banks have raised it by around 150 basis points and the consensus is that more is in store.
TOI
No comments:
Post a Comment