FinMin asks PSBs to restrict bulk deposits to 15%

http://www.thehindubusinessline.com/industry-and-economy/banking/article3657857.ece

The Finance Ministry has asked public sector banks (PSBs) not to accept bulk deposits beyond 15 per cent of total deposits to improve asset-liability management.

“Ten per cent is the bulk deposit above the card rate and 5 per cent is the CDs (certificate of deposit). With an overall cap of 15 per cent banks have flexibility,” the Department of Financial Services Secretary, Mr D K Mittal, said on the sidelines of FIEO meet here.

A circular in this regard has been issued by the Ministry to the banks recently.

“It has a huge risk to us as a banking system. I don’t want to comment on that,” he said when asked for the response of the banks on that.

However, bankers are of view that putting a ceiling on the bulk deposits would reduce the flexibility to cut retail fixed deposit rates in a declining rate cycle. This would mean pressure on NIMs (net interest margin) of public sector banks.

According to some statistics, State Bank of India, Allahabad Bank and Indian Bank have bulk deposits lower than 15 per cent of their total deposits.

However, Canara Bank has bulk deposit of 43 per cent, followed by OBC at 28 per cent of the total deposits as of March 2012.