Bidding for large corporate deposits (CDs) has made a strong comeback with banks paying more for bulk deposits than for retail funds, where they have started raising interest rates.
Last week, when a public sector oil company was in the market to park excess cash, banks vied to get the resources. This week will be no different and the pressure will intensify. Banks are expected to offer close to 9% to access surplus funds from a state government public sector company and some mining companies that are in the market.
If today’s trading data is anything to go by, certificates of deposits —which are short-term securities used by banks to tap funds for up to 12 months from the money market—9 % interest rate on bulk deposits is a safe bet, market players said.
According to data compiled by Reuters on Monday, three public sector banks, whose CDs will mature in early March, will be paying 8.80-8 .95% at the time of maturity . The yield on Bank of India’s CDs, due to mature at the end of November 2011, was estimated at 9.12%. Following Monday’s hike, SBI is offering a peak rate of 8.75% for retail deposits with 8-10 year tenure.
Banks are going all out to raise resources to meet the growing demand for loans at a time when funds available in the system have dried up. While the tight liquidity position is partly the result of a series of interest rate hikes announced by RBI in 2010, the lower growth of deposits also played a role.
On a yearon-year basis, till November 19, the growth in deposits was around 16%, while bank credit grew by 22.7%. What is adding to the pressure is maturity of CDs of around Rs 1 lakh crore by the end of this month.
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