Public Sector Banks
still treat bulk deposit/ high cost deposit as Oxygen for survival and as
easiest means to achieve the target imposed by Ministry of Finance. It is true
that MOF has been repeatedly giving instructions to banks to refrain from high
cost deposits but banks are bent upon doing so despite FM advice.
Why?
Why banks are ready to pay high interest rate to acquire bulk deposits but not ready to pay high rate of interest on saving deposits to retail depositors as private banks are paying?
It is only because
High cost deposit comes in bulk quantity and may be secured by paying some lac
of rupees in bribe to high powered government officials and ministers. On the
other hand it is not easy to mobilize retail deposit thousands of
crore of rupees from common men and retail investors because this Himalayan task
can be possible only when they extend best customer service to common men and
only when all field functionaries are fully devoted and loyal to bank and not
tot the boss under whom a officer work.
Some of top ranked
officials and branch heads who are expert in earning number two money in sanction
of loans manage successfully high cost deposit from PSUs and government
departments by spending some official and non official money to secure fund. They
are ready to bid higher rate of interest even if the cost of deposit goes up.
After all it is the volume of business and volume of deposits which helps in
promotion and which helps flatterer officer in earning good image before their bosses.
It is bitter truth
and undeniably reality of bank HR management that an officer who mobilize a
crore of rupees as deposit is considered a star performer even if the same
bank officer causes loss of ten crore rupees to bank by bad lending. It will not be an exaggeration to say that most of the officers who got elevated by mobilising bulk deposits or by flattery are responsible and accountable for high value Bad loans. This is why accountability is not fixed if a loan account involving crore of rupees goes bad and become NON PERFORMING ASSET.
It is the fact that top bosses are seldom bothered whether interest rate is high or low .None of the officers try to
understand the rise in cost of deposit due to such high cost deposit. They try short cut methods to win the race and this is
the well established culture.
Bank officers who
are career oriented focus only on mobilizing Bosses or mobilizing deposit from
government departments by hook or by crook and for this purpose they do not
hesitate in using illegal ways and means. They openly earn illegal money in
process of sanction of new loans. There may be some exceptions to this and it
is these exceptional officers who are sidelined form mainstream and rejected in
all promotion processes.
It will not be
untrue to say that deposit based mindset of top officials has adversely
affected the asset quality of every public sector banks .Most of the officers
in private banks focus on quality of business they mobilise and ensure profit
from the business but in public sector banks officers work for the pleasure of
their bosses , not for the safety and security of the assets of the bank.
As such Ministers who preach sermons on cost of deposit
and who aspire of low rate of interest should first stop focusing on assessment
of bank on the basis of deposit but should concentrate on profits and the ways
and means of earning profit, MOF should focus on social agenda for which banks
were nationalized and stop bankers achieving target of advances and deposits by
window dressing during last few days of the year.
It is well known to all that
most of branches and most of banks achieve their business target during the
month of March by window dressing and Minister also indirectly promote and support such
unhealthy culture and hence remain silent spectator. A year ago Mr. D. Mittal , the then Finance Secretary tried his best to bring change in the prevalent bad culture in PS banks but he was sidelined by clever FM Mr. Chidambram as Harayan government transferred Mr. Khemka to remote place to save Mr. Vadra..
.
For healthy growth of business , banks will have to focus
on retail deposits and retail advances and similarly banks will have to modify
their mindset of promoting officers who are flatterer to bosses or who mobilize
a few crore of rupees of deposits from a few government department or who
sanction a few crore of rupees as loans to bad borrowers to achieve the
target.MOF will have to focus on quality and not quantity of the business if they want really to safeguard banks and safeguard public money for which banks are custodian and duty bound to protect the interest of investors and depositors.
It is difficult to ensure compliance of rules and policies until rule makers are honest from the core of their heart.Actually current Congress party led government says that survival of India's economy depends on inflow of foreign bulk fund and then how can they preach bankers not to depend on bulk high cost deposits.
When survival of the country is dependent on Foreign fund and short term or long term borrowings even though it adversely affects the inner and core value of the country , banks will also continue to depend on high cost deposits even though it is harmful for bank .
Stop banks from bidding for PSU bulk deposits: Finance ministry to RBI--
ET 16th September 2013
NEW DELHI: In a somewhat unusual move, the finance ministry has asked the Reserve Bank of India (RBI) to address the issue of banks participating in bids called by cash surplus state-run firms for placing their bulk deposits.The finance ministry has been trying to curb aggressive bidding for deposits by banks as it feels this pushes up cost of funds and eventually makes credit expensive. State-run companies are sitting on cash balances of nearly Rs 3 lakh crore. "Banks are forced to offer a higher rate because of the bidding process, often done informally," a finance ministry official said confirming that the issue has been raised with the RBI. The central bank is aware of the problem and had said even in its 2012-13 monetary policy statement that there was a wide variation in banks' retail and bulk deposits, which is unfair to retail depositors.
It had even raised the limit for differential rates of interest for deposits of the same maturity to Rs 1 crore from Rs 15 lakh from April 1 this year. The current policy requires banks to maintain "minimal" variation in interest rates offered on such term deposits and regular retail deposits, but the term minimal is not defined.
The finance ministry is of the opinion that if the term "minimal" is capped, then banks will be bound to offer rates within a range. "At present the onus is on the bank's board to approve a transparent policy on pricing of liabilities but business matters force banks to overlook such norms," the finance ministry official said, adding that recently some private banks had participated in bids, thus jacking up rates for all players.
A senior official with the Department of Public Enterprises (DPE) said they have already reiterated their circular advising state-run firms not to invite bulk deposits.
"Our circular continues to be in force. We have not received complaints from banks or the finance ministry. If PSUs are inviting bids then it would be an informal practice and finance ministry should discourage banks from taking high cost deposits," he said. DPE is the nodal agency for all 246 central public sector enterprises.
State-run firms feel that targeting them is unfair as banks also take deposits from large corporate houses. "If we place our deposits, the maturity period is at least a year or above but corporates put their money on short-term deposits and still get better rates. The finance ministry should rather investigate that," said the director-finance of a power sector PSU. Banks, however, continue to blame PSUs for their mismatch in liabilities. "The aim is not to restrict banks but ensure that PSUs do not earn profit from their surpluses and invest in capital expenditure," argued a senior official with State Bank of India
http://economictimes.indiatimes.com/news/economy/finance/stop-banks-from-bidding-for-psu-bulk-deposits-finance-ministry-to-rbi/articleshow/22607355.cms
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.
High-cost deposits may hit 17 banks’ profits
Seventeen public sector banks have high-cost deposits and CDs above the target of 15 per cent set by Finance Ministry and this could affect their profitability
New Delhi: 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.
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.
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.
FM worried as banks raise high-cost deposits--
New Delhi, Apr 18 | Updated: Apr 19 2007, 00:20 IST
Finance minister P Chidambaram is set to take up the issue of state-owned banks offering high interest rates to boost deposits in a meeting with bank chiefs on Thursday.
Government officials told FE the ministry was not particularly comfortable with state-owned banks raising high cost deposits and it might want to monitor their growth. In the last quarter of 2006-07, banks hiked lending rates up to 10.25% to boost their deposit base.
Most state-owned banks have managed to achieve their projected deposit targets set in the beginning of 2006-07, the officials said, adding this may have been possible by aggressively pushing high-cost deposits. The ministry is worried the move would impact banks’ profitability in the long run.
In 2006-07, aggregate deposits increased by Rs 4,85,200 crore. Data with the Reserve Bank of India, however, reveals that the aggregate deposits of scheduled commercial banks during April-December 2006 increased by just Rs 2,72,194 crore. This means that banks mopped up almost 44% of the deposits or Rs 2,13,006 crore during January-March 2007.
While deposits growth rate for the full year stood at about 23%, it was only 13% till January 2007, the central bank data suggested. It may, however, be noted that even in 2005-06, banks saw a huge growth in deposits in the last quarter.
Many individuals opted to park their incremental investments in bank FDs than in small savings for better returns.
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