Corporates shift cash reserves to PSU banks
By Neelima Shankar
Jan 19, 2009
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Today as public sector banks are considered to the safest amongst investors, most corporates are seen to shift their funds from private banks and equity market towards PSU banks. This trend has been developed from the past six months that has almost the doubled the average deposit growth rate of PSU banks.

Recently the IT major Infosys was noticed shifting majority of its bulk deposits to the public sector banks including State Bank of India, Punjab National Bank and Syndicate Bank. But now even the retail depositors such as HNIs and public sector enterprises like ONGC, SAIL and other corporates are seen parking their deposits with PSU banks.

The majority of the corporates are depositing their funds with the largest lender, SBI. The bank's Chairman, OP Bhatt said, "In the third quarter of 2008-09, our pockets bulged more than they usually do at this time of the year." The bank deposits rose by average of Rs 1,000 crore every day during the month of November 2008 and this is double the double the average deposits that bank receives during this period. "Compared with the monthly average of Rs 14,000 crore (deposits), this is exceptional," said Bhatt.

This phenomenon described as capital's ‘flight to safety' was noticed due to the downfall of some major global private banks and high interest rate offered by the PSU banks.

During the third quarter of the ongoing fiscal, Punjab National Bank (PNB) witnessed its average deposits doubled. The fixed deposits of the bank increased by around Rs 8,000 crore for the period between September and December 2008 as compared to the total deposits of Rs 7,000 crore for the entire half year ending on September 2008.

The bank official said that the retail depositors are investing in the fixed deposits because it offered attractive interest rates. Moreover the slowdown in equity market has also diverted the depositors towards the bank deposits.

Besides the industry sources said that the inflows of funds increased because other public sector enterprises were parking their money with PSU banks on government's advice.

For instance, the board of ONGC decided to shift their entire cash funds to SBI for the second half of the year 2008.

In October and November 2008, public sector banks received aggregate deposits of more than Rs 4,000 crore every day.

The investors prefer to park their funds in PSU banks because of the lower risk associated with them.


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