Banks face tough task ahead to reduce bulk deposits
By Neelima Shankar
Aug 16, 2012
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In an attempt to comply with central banks norms on bulk deposits, the lenders across the nation are considering reduction in interest rates on such deposits. Generally bulk deposits enjoy 40-50 basis points advantage over regular fixed deposits.

Earlier last month, the Finance Ministry had asked banks to limit their bulk deposits to 10% and certificates of deposits (CD) to 5% of total deposits by end of the fiscal. The move was primarily directed to improve bank's asset liability management and profitability.

"Fortunately there is not too much of a credit demand. So unless a bank is very crazy about growing its balance sheet, then it will refrain from raising such deposits. Rates on bulk deposits will automatically come down," said Mr. SL Bansal, Chairman and MD, Oriental Bank of Commerce.

However, a large reduction in bulk deposits would affect the asset-liability management for the bank. Also banks which have taken deposits at higher interest rates might face problems if they do not renew those deposits.

Many banks are planning to approach the union government to provide some relief on deadline to meet the new norms. Corporation Bank, which has 40% of its total deposits in bulk deposits proposes to seek relaxation in deadline for the reduction in bulk deposits. For public sector bank, Central Bank of India bulk deposits amount for 39% of total deposits, the bank chairman Mr. MV Tanksale hopes to extend the deadline by end of next fiscal.

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