Banks Will Have To PUT Bulk Deposit Rate Now On Website For Uniformity

RBI asks banks to post bulk deposit rates on website

BS Reporter / Mumbai Aug 31, 2012, 00:03 IST ( from Business Standard ) The Reserve Bank of India (RBI) has asked banks to put up bulk deposit rate on their websites, to stop banks from offering exorbitant rates to corporate depositors. According to RBI norms, no bank can offer varying rates on the same day at different locations. According to bankers, some of the banks are offering as much as 200 basis points higher than the card rate to their corporate clients. Bulk deposits are corporate deposits that are generally Rs 1 crore and above with maturity of up to one year. The central bank’s directive comes following the finance ministry’s effort to discourage banks’ rush for bulk and certificates of deposit, which are of high cost and adversely impact margins. The ministry had asked banks to cut down their proportion of high cost deposits (bulk deposit and certificates of deposit) to 15 per cent, with a cap of 10 per cent on bulk deposits. About 25-30 per cent of the deposits of public sector banks are bulk in nature. The central bank and the finance ministry’s concern over exorbitant bulk deposit rate comes on the back of banks scrambling for funds during the end of the previous financial year. In March, bulk deposit rate crossed 12 per cent, higher by 100 basis points in a month. As a result, deposit growth in March swelled by Rs 3 lakh crore — one third of the deposits garnered in 2011-12. The finance ministry and RBI had also asked the public sector banks not to bid for bulk deposits. Earlier this week, Mumbai-based public sector lender Bank of India reduced the rate on interests on bulk deposits in some tenors by 25-50 basis points. http://www.business-standard.com/india/news/rbi-asks-banks-to-post-bulk-deposit-rateswebsite/484960/ My VIEWS:--------------- It is right to say that high proportion of bulk deposit at higher rate increases cost of deposit of banks and ultimately increases lending rates too which adversely affect the credit growth but also growth targets of the economy. This is why RBI and Ministry of Finance have been impressing upon public sector banks not to offer higher rate for bulk deposits, not to participate in bid for bulk deposits and to restrain their bulk deposit portfolio to 15% of their aggregate deposits. But if only public sector banks are restrained from offering higher interest  rates on bulk deposits and  if only Public sector banks are prevented from taking part in bid for bulk deposits, the entire deposit will shift to private banks .This will increase deposit base and increasing lending power of private banks and finally they will offer lesser interest rate on lending too affecting the overall business of public sector banks. They can spoil the market for state run banks by offering attractive lending rates and then realizing the profit on these lending through some other ways. Moreover when bulk deposit of any company shifts to private banks, it is but natural that other operational accounts including salary account of the company will shift to these banks. This will again adversely affect CASA of government banks and ultimately the cost of deposit will increase and the power of these banks to compete with private banks will get eroded. Not only this , even clients, contractors and suppliers of companies which keep bulk deposits may also shift from public sector banks to private banks where their patrons keep bulk deposit and other operational accounts to avoid wastage of time in clearance of cheque through collection or clearing. Obviously any restriction on government banks or curtailing of freedom and giving the same to private banks will have cascading repercussion on bottom line of state run banks. It is also to be kept in mind that proportion of bulk deposit is huge in all government banks ranging from 20 to 40 percent. If this large amount, roughly Rs.300000 crore is withdrawn from government banks and parked in private banks, position of these banks will suffer great loss compared to private banks. In addition, there are as much as Rs.900000 crore as idle cash with various big companies. In addition to this, lacs of crores of rupees are kept in banks by government departments for spending the same in gradual way in developmental projects.  As such a large chunk of bulk deposit will be snatched by private banks only and ultimately this will give an impression that government of India willfully damaged state run banks to boost up the profitability of private banks. I have been of the opinion since long that RBI should decide the rate of deposits and rate on interests for various kind of advances keeping in view the priorities of the nation and other economic parameters like inflation , global situation , currency rate, natural calamities , political situation , social welfare needs, fiscal deficit etc and finally the overall monetary policy and fiscal guidelines issued from government of India from time to time.  These rates should be binding for banks Private as well as public sector banks and should be available on website of all banks and customers should be offered uniform rate of interest in all corners of the country for all segment of the society and for all customers of all banks , for individuals and for institutes , for retail or bulk deposits.  Any deviation on rates should also be applicable to customers of all banks .This will stop unhealthy interest war among banks , especially among government banks .This will stop all types of bidding. Rather GOI can give instruction to all companies to stop this unhealthy practice of earning profit by interest , Theses companies having idle cash should rather make efforts for using the idle fund for development of the economy.  Alternately these companies may also  lend to other associates of the company or any needy company at rate decided by RBI fulfilling all norms prescribed by RBI to safeguard the interest of the company and borrowers .They will have to provide like other Financial institutes for bad debts and maintain all risk mitigants inn their system as necessary. If this proposition suggested by me has any side ill effects , it should not be allowed or stopped in future. It is to be noted that even now companies like Mahindra and Mahindra, Reliance  If rates are uniform and decided by RBI, other banks will then focus on growth of real business and will save their energy in management of assets and liabilities of various time and rate maturities. They will be able to focus on quality of their service .Banks will get ample time for moving in the field to mobilise new business and to monitor their existing loans . This will improve quality of advances and help in quality growth of advances of all banks.  Lastly, GOI and RBI may advise all government departments and public sector undertakings to park their idle fund only in state run banks. After all any loss by any of government banks caused by interbank interest war will be the loss of the same government and loss to the investor. As such if policies framed by RBI or GOI either for interest rate or for Financial inclusion or for lending under priority sector or for opening of branches or for short term unsecure loans are not uniformly applicable to all banks , the resultant consequences may be enormous and dangerous for banking as a whole. Even customers of banks  in the long run get frustrated and eventually  not benefitted by such type of unhealthy competition among bank; they also spoil their time and energy in shifting their banking business from one bank to other. Some of mischievous customers take advantage of this and avail loans from many banks and ultimately assets of all such banks goes bad.