Cos use one bank against another for better rates
Cash-rich corporates are once again trying to play banks against each other. This time around to get best rates on bulk deposits.
By Sangita Mehta, ET Bureau |
MUMBAI: Cash-rich corporates are once again trying to play banks against each other. This time around to get best rates on bulk deposits. A number of corporates are renegotiating interest rates with banks over existing deposits. If banks disagree to realign rates, corporates are prematurely breaking fixed deposits even at the risk of paying a penalty.
For instance, in the past week, steel major SAIL tried to renegotiate FD rates with IDBI. Sources said while the FD was pegged at 10.2% for one year and due to mature sometime in March 2009, the company asked the bank to offer a market-related rate on the same.
After IDBI declined to increase the rate, the company demanded premature closure of the FD by agreeing to receive lower interest on it. Sources said SAIL later parked around Rs 1,300 crore with State Bank of India for 12.26%.
However, other bankers said considering the liquidity crunch, they were forced to give in to the demands made by corporates to revise rates upwards prematurely.
���Alternatively, the corporate could walk away and we would have to pay the rate demanded or even more to mobilise funds,��� pointed out a treasury head. It may be recalled that the finance ministry has often warned banks not to compete with each other for bulk deposits. In fact, the ministry has also directed PSU companies to renew at least 60% of their deposits with existing banks.
However, at the same time, deposits have not kept pace with high credit growth. Also, globally, markets are facing a liquidity crunch due to failures of large commercial and investment banks.
On an average, banks are borrowing overnight money in the range of Rs 70,000-90,000 crore from the Reserve Bank of India at 9%. On retail deposits, banks are offering as high as 10.5% for the medium term. For instance, SBI is offering 10.5% for 1,001 days and IDBI is 10.5% for 890 days.
On Monday, OP Bhatt, chairman of the country���s largest lender State Bank of India, told reporters: ���Inflation has now come down, at least a little bit, so it is unlikely (interest rates) will go up very much higher. It may not go down very much.���
Last year, the Reserve Bank of India had prohibited banks from coming out with ���special��� retail fixed deposit schemes where funds could not be withdrawn. The central bank had pointed out that customers are entitled for mid-term closure of fixed deposits and receive interest rates for the short-term.
For instance, in the past week, steel major SAIL tried to renegotiate FD rates with IDBI. Sources said while the FD was pegged at 10.2% for one year and due to mature sometime in March 2009, the company asked the bank to offer a market-related rate on the same.
After IDBI declined to increase the rate, the company demanded premature closure of the FD by agreeing to receive lower interest on it. Sources said SAIL later parked around Rs 1,300 crore with State Bank of India for 12.26%.
However, other bankers said considering the liquidity crunch, they were forced to give in to the demands made by corporates to revise rates upwards prematurely.
���Alternatively, the corporate could walk away and we would have to pay the rate demanded or even more to mobilise funds,��� pointed out a treasury head. It may be recalled that the finance ministry has often warned banks not to compete with each other for bulk deposits. In fact, the ministry has also directed PSU companies to renew at least 60% of their deposits with existing banks.
However, at the same time, deposits have not kept pace with high credit growth. Also, globally, markets are facing a liquidity crunch due to failures of large commercial and investment banks.
On an average, banks are borrowing overnight money in the range of Rs 70,000-90,000 crore from the Reserve Bank of India at 9%. On retail deposits, banks are offering as high as 10.5% for the medium term. For instance, SBI is offering 10.5% for 1,001 days and IDBI is 10.5% for 890 days.
On Monday, OP Bhatt, chairman of the country���s largest lender State Bank of India, told reporters: ���Inflation has now come down, at least a little bit, so it is unlikely (interest rates) will go up very much higher. It may not go down very much.���
Last year, the Reserve Bank of India had prohibited banks from coming out with ���special��� retail fixed deposit schemes where funds could not be withdrawn. The central bank had pointed out that customers are entitled for mid-term closure of fixed deposits and receive interest rates for the short-term.
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