Govt considering to fix cap for bulk deposits mobilisation

NEW DELHI: The government may come out with an advisory on the ceiling for mobilisation of high cost deposits as a per centage of total deposits for state-owned banks.

The issue of bulk deposits in public sector banks is being considered by the Finance Ministry and some decision would be taken in the coming days, sources said.

There is a thinking that banks should not depend on instruments such as certificate of deposits and bulk deposits more than 15 per cent of the total deposits, sources said, adding, a final view has to be taken on the issue.

According to Standard Chartered Securities, putting a ceiling on bulk deposits would reduce the flexibility to cut retail term deposit rates in a declining rate cycle which will mean pressure on NIMs (net interest margin) of public sector banks.

This could also require banks to increase retail term deposit rates, Standard Chartered Securities said in a report.

"Most Ministry of Finance directives are in the form of annual targets," it said.

"We believe the government is unlikely to set a timeline of compliance, but banks will have to show adherence by reducing the proportion of bulk deposits every year and take care to stick to the norm for their incremental deposits," it added.

According to the data, State Bank of India, Allahabad Bank and Indian Bank are the only banks that have bulk deposits lower than 15 per cent of their total deposits.

Canara Bank has bulk deposit of 43 per cent, followed by OBC at 28 per cent of the total deposits as of March 2012, it said.