BANKS GO FOR BULK DEPOSITS TO SHORE UP RESOURCES

With liquidity expected to tighten over the next few weeks, banks have begun chasing bulk depositors through large certificates of deposit (CD) issuances.

Since the beginning of the week to date, about Rs 7,000 crore of CDs were issued by various banks. The largest issuers included Canara Bank and Punjab National Bank, Allahabad Bank and Corporation Bank. These banks alone raised the equivalent of Rs 4,800 crore through CD floats in the last two days.

Banking sources said that part of the resource mobilisation efforts were partly roll-over maturing CDs — both short and long term funds floated last year. Funds parked into CDs were mostly from large corporates including petroleum refining companies, public and private sector. That a liquidity tightening appeared imminent was evident from the firming up of CD rates.

The one-year CDs placed by Canara Bank and Corporation Bank were at 6.90 per cent. One-year CD rates had dropped to as low as 5.2 per cent at the end of the first quarter of the current fiscal. These rates are now higher than the one-year retail term deposit rates of 6.5 per cent. Since the beginning of this April, one-year CD yields have remained lower than one-year term deposit rates.

The expectations of the tightening were there despitethe liquidity overhang in the banking system. Recourse to the reverse repurchase window at Wednesday's liquidity adjustment facility auction was Rs 67,520 crore.

Source: http://www.thehindubusinessline.com/2010/02/25/stories/2010022550770600.htm