High-cost deposits may hit 17 banks’ profits---------Business Line
NEW DELHI, MARCH 31:
Seventeen public sector banks may take a hit on profitability because of the high-cost deposits they hold.
These banks’high-cost deposits and certificates of deposit (CDs) have overshot the target (15 per cent of total deposits) set by the Government. Also, they are despite a Finance Ministry directive of September 2012 asking banks to trim such deposits.
The Finance Ministry defines high-cost deposits, also called bulk deposits, as ‘any amount of deposits solicited at rates higher than card rates’. Card rates are those published by banks for various kinds of deposits.
AVERAGE COST
According to data collected by the Finance Ministry for the nine months ending December 31, 2012, only seven out of 20 nationalised banks had high-cost deposits and CDs below the target of 15 per cent. Similarly, among State Bank of India and its five associates, two were below the target. Overall, in 17 banks high-cost deposits and CDs form 15.31-36.10 per cent of total deposits, even after recording a significant reduction from the March 2012 level. However, even among the banks that maintained high-cost deposits within the target, the average cost of deposits in all but one (Bank of India) increased in the period ended December 31, 2012.
For instance, the average cost of deposits of IDBI Bank was 8.49 per cent, Punjab and Sind Bank 8.31 per cent, Corporation Bank 8.15 per cent and Vijaya Bank 8.09 per cent — all higher than other banks. Banks are supposed to bring down high-cost deposits and CDs to the targeted level by March 31, 2013. How many banks have succeeded will, however, be clear only when banks publish their results.
UNSUSTAINABLY HIGH
According to the Finance Ministry’s circular of September 26, the total high-cost deposits (bulk deposits and certificates of deposit) should not exceed 15 per cent of total deposits at any given point of time. “It appeared that, in order to garner deposits and increase balance sheet size, PSBs (public sector banks) tended to raise deposits and certificates of deposit at very high rates, which were close to 12 per cent per annum,” it said. The circular said mobilisation of such deposits at unsustainably high rates would not only affect the profitability of such banks but also their asset liability management, adding that guidelines in this regard needed to be followed in ‘letter and spirit’.
“All concerned may also be appropriately advised that any deviation from the above instructions may be treated as violation of instructions of the Government,” it said.
Lending likely to outpace deposit growth this fiscal, say bankers
MUMBAI, 2013 APRIL 1:
Even as banks are likely to meet the Reserve Bank of India’s deposit and credit growth projections for the fiscal 2012-13, bankers and analysts see muted growth in FY14.
For FY13, the RBI’s growth projections for deposits and credit were 15 per cent and 16 per cent, respectively. Credit and deposit growth for FY14 is likely to be 16-17 per cent and 14-15 per cent, respectively.
Says A. Krishna Kumar, Managing Director and Group Executive, State Bank of India, “Traditionally, the first two quarters of a financial year mostly remain muted. Even then, I expect both advances and deposits to grow at 15-17 per cent in FY14.”
In FY13, banks shied away from aggressive lending due to concerns over asset quality. A rise in non-performing assets, delay in project implementation and inability to raise equity amid an overall slowdown in the economy impacted credit demand in the banking system.
“However, with a pick up in loans to retail and small and medium sector enterprises, the credit growth is likely to meet the RBI’s growth expectations. Similarly, a rise in savings deposits by year-end will also help match the growth projections,” said K. Subrahmanyam, Executive Director, Union Bank of India.
According to Pawan Agrawal, Senior Director, CRISIL Ratings, “Consistent with economic trends, credit growth will be at about 16 per cent, while growth in deposits will remain subdued at around 14 per cent in 2012-13, due to lower household savings rate and weaker surplus liquidity with corporates.”
LOWER DEPOSIT GROWTH
According to analysts, credit growth will outpace deposit growth.
“Deposit growth is still a concern and is likely to be about two percentage points lower than RBI’s estimates,” said Vishal Narnolia, Research Analyst, SMC Global Securities Ltd. In FY14, looking at the government’s estimate of 6.5 per cent GDP growth, the credit growth may be around 17 per cent. Deposit growth will still be lower at 15.5-16 per cent, he added.
Says Dinesh Shukla, Banking Analyst, Sharekhan, “Credit is likely to have grown by 15-15.5 per cent, mainly in the non-infrastructure sector in the fourth quarter, while deposit growth could have lagged at 12-12.5 per cent.
For FY14, given the GDP growth projections, credit growth will be at 16 per cent, while deposit growth will be at 14-15 per cent if inflation comes down.
However, Subrahmanyam expects credit to grow at 15-17 per cent, while deposits growth to be slow at about 14-15 per cent.
CREDIT DEMAND
According to a CARE Ratings report, working capital demand will continue in the industrial sector even as project finance will be impacted in the first half of FY14 due to moderation in investment cycle.
Further, changes announced in the Budget coupled with softening of interest rates will have a favourable impact on housing in tier II and tier III cities, the report states. This will boost the real estate credit segment to some extent.
Bankers say, the credit off-take is still largely dependant on the retail segment along with agriculture, real estate and small and medium sector enterprises.
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