Finmin tells PSUs not to invite bids for bulk deposits
The finance ministry has decided to break the nexus between public sector undertakings (PSUs) and commercial banks over parking of idle funds through competitive bidding.
By Atmadip Ray, TNN |
KOLKATA: The finance ministry has decided to break the nexus between public sector undertakings (PSUs) and commercial banks over parking of idle funds through competitive bidding. The mission is simple: to prevent banks from offering hefty returns on bulk deposits of PSUs.
Finmin officials feel competitive bidding leads to ���undesirable competition��� among banks and drives up bulk deposit rates arbitrarily.
A finance ministry directive dated January 15 categorically asks all government departments and PSUs to refrain from inviting competitive bids from banks before parking surplus funds.
But in a clear violation of this diktat, droves of PSUs continue to invite such bids from banks. Their objective is clearly to earn extra returns on idle funds. Accordingly, the government has resolved to track down some conniving banks which allegedly operate hand-in-glove with the PSUs.
Last week, such ���undesirable competition��� drove up even the short-term three-month deposit rates to 9.5%. The card rate for three-month deposits are currently hovering below 7% per annum mark. ���Some banks have quoted rates as high as 9.75% for short-term deposits,��� a banking source said.
It is learnt the finance ministry is unhappy with a clutch of banks that are playing this game. ���Some banks are still involved in this malpractice. Senior ministry officials have called us to unravel these developments in the bulk deposit market,��� a top executive with a Mumbai-based bank told ET.
PSUs involved in such a drill typically invite banks to submit fixed deposit rates in sealed tenders. ET has learnt a handful of Kolkata-based PSUs are violating the finance ministry diktat rampantly.
Finmin officials feel competitive bidding leads to ���undesirable competition��� among banks and drives up bulk deposit rates arbitrarily.
A finance ministry directive dated January 15 categorically asks all government departments and PSUs to refrain from inviting competitive bids from banks before parking surplus funds.
But in a clear violation of this diktat, droves of PSUs continue to invite such bids from banks. Their objective is clearly to earn extra returns on idle funds. Accordingly, the government has resolved to track down some conniving banks which allegedly operate hand-in-glove with the PSUs.
Last week, such ���undesirable competition��� drove up even the short-term three-month deposit rates to 9.5%. The card rate for three-month deposits are currently hovering below 7% per annum mark. ���Some banks have quoted rates as high as 9.75% for short-term deposits,��� a banking source said.
It is learnt the finance ministry is unhappy with a clutch of banks that are playing this game. ���Some banks are still involved in this malpractice. Senior ministry officials have called us to unravel these developments in the bulk deposit market,��� a top executive with a Mumbai-based bank told ET.
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PSUs involved in such a drill typically invite banks to submit fixed deposit rates in sealed tenders. ET has learnt a handful of Kolkata-based PSUs are violating the finance ministry diktat rampantly.
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