Public sector banks told to shift focus away from high-cost bulk deposits

New Delhi: The federal government has cautioned state-run lenders towards counting on high-cost bulk deposits and suggested them to give attention to low-cost retail ones. The difficulty was flagged at a current assembly between lenders and senior authorities officers, folks aware of the deliberations informed ET.

“The warning on high-cost deposits is part of the overview of the asset legal responsibility danger administration practices adopted by banks,” a authorities official stated, including that it was additionally identified that one other problem for public sector banks is to arrest the decline in present and financial savings account, or CASA, which has come right down to 57% in March 2023 from 64.9% in 2018.

These discussions have been additionally held as a part of a three-year roadmap (FY 24-26) for public sector banks.

Earlier this yr, in a overview assembly with finance minister Nirmala Sitharaman, one of many concern areas recognized for PSBs was elevated competitors for deposits on account of merger between Housing Growth Finance Company and HDFC Financial institution.

The federal government’s concern on bulk deposits stems from the previous expertise of banks getting saddled by high-cost deposits impacting their efficiency within the coming years.The price of deposits for all banks has elevated by 1-2% within the final yr, together with for the nation’s largest financial institution, State Financial institution of India, the place value of deposits jumped from 3.84% in September 2022 to 4.65% in September 2023.Based on a Care Edge rankings report, the competitors for deposits is more likely to intensify even additional, “leading to an increase in funding prices within the coming intervals as charges stay elevated and CASA share reduces”.

In 2012, the federal government had issued a round directing public sector banks that the overall of bulk deposits (at charges greater than the prevailing card charges) and certificates of deposit shouldn’t exceed 15% of complete deposits of the financial institution at any given level.

At current, deposits of most banks are hovering round this benchmark, however the authorities desires lenders to strictly adhere to this pink line with the price of deposits going up.

Score company CareEdge estimates the credit score development to be within the vary of 13-13.5% and deposit development to be within the vary of 10-10.5% throughout FY24.

Bankers say they’re being cautious.

Financial institution of Baroda chief government Debdatta Chand stated bulk deposits have been growing at a sooner fee than development in retail time period deposits for the trade.

“This isn’t solely particular to Financial institution of Baroda, your complete trade is witnessing the same pattern,” he stated, including that the financial institution determined to not give attention to the majority section.

“For those who have a look at this quarter, the sequential development is barely 3.4%, and it’s aligning to the deposit development,” he stated in an interplay, after saying the second-quarter monetary outcomes.

The lender stated that its bulk deposits, together with certificates of deposit or CDs, elevated by 59% from Rs 1.36 lakh crore within the final yr.

Punjab Nationwide Financial institution chief Atul Goel stated the financial institution just isn’t giving the speed for bulk deposits.