Banks hike rates for bulk deposits, ignore small deposits
By Joseph Samson
Jun 18, 2008
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Following the rise in repo rate by the RBI last week, banks have begun offering better rates to bulk depositors. However, at the same time, banks are hesitant to pay a higher rate of interest on retail deposits. The interest rates being offered on the certificate of deposits (CD) have gone up in the past 3-4 days.

Banking sources say that against 8.75-9% offered earlier, most banks are paying in the range of 9.25-9.50% for the one-year bulk deposits. However, for bulk deposits, banks are offering 8.85-9% for 1-3 years. Most of the bulk deposits are placed by public sector companies.

Amidst fears of inflation increasing to higher levels from the current level of 8.75%, bulk depositors are demanding higher returns on deposits on grounds that they are getting a negative return at 8.5-9% that is being offered by banks. As compared to retail depositors, bulk depositors are at a better position to bargain better rates than them.

Following the advance tax outflows, liquidity has dried up and this has lead to a substantial rise in the interest rates on certificate of deposits. There have been tremendous changes over the week overseeing the repo rate hike. For example, a week ago, a three-month, best-rated CD issued by State Bank of Hyderabad was placed at 8.85%. On Monday, a three-month, best-rated CD by Karnataka Bank was placed at 9.25%. In fact, best-rated, one-year CD by HSBC was placed at 9.70% on Monday. Against this on June 5, State Bank of Patiala had raised money for nine months through CD at 9%.

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