With the liquidity strain of recent times out of the way, banks are scouting around for medium to long-term funds to avoid facing a liquidity squeeze again.
ICICI Bank, Union Bank of India, UCO Bank, Central Bank of India and Yes Bank, among others, are offering more than 6 per cent interest on one-year bulk deposits versus the 4 per cent or so paid to retail customers on one-year deposits.
Treasury managers of large companies have received numerous calls from banks offering interest rates of 6-6.5 per cent on one-year deposits.
"In recent days we have got calls from many banks such as ICICI Bank, Punjab National Bank, Yes Bank and others to deploy bulk funds with them," said a treasury manager at a large corporate house. Incidentally, companies are raise one-year money themselves in the market at 5.85-6 per cent.
Usually, the interest rates offered by banks to large depositors are 25-100 basis points higher than the published card rates on one-year bulk deposits. One basis point is one-hundredth of one per cent.
Banks opt for bulk deposits to build up their deposit base in a hurry. Apart from the sizeable amount of funds available at one go, servicing bulk deposits is also cheaper than servicing retail deposits.
ICICI Bank seems to be the most aggressive bidder in the market. According to market sources, ICICI Bank mops up around Rs 150-200 crore (Rs 1.5-2 billion) every day from cash-rich companies and welfare trusts. ICICI Bank is paying 6.45 per cent for one-year deposits.
"We are collecting funds as there is a huge requirement for long-term lending. Credit disbursements are high in the retail segment as well as infrastructure funding in areas like oil, power and steel," said a senior ICICI Bank official. Most banks did not admit that they were collecting deposits at such high interest rates.
"We were collecting bulk deposits and offering interest rates over 6 per cent about a month back. But now the situation has changed and we are quoting 25 basis points more than the current card rate," said a senior bank official of a public sector bank.
However, according to a corporate treasurer, banks try to out-bid each other in the hope of getting large deposits.
The deposit mobilisation team of one public sector bank quoted 6.25 per cent for one-year money. The quote was a full one percentage point higher than the published card rate of 5.25 per cent.
The bank official, however, admitted that there is an appetite for long-term deposits since interest rates are heading upwards. The dwindling deposits from non-resident Indians is yet another reason for the crunch in funds, he added.
Analysts are rather astounded with the rates banks are quoting for one-year money.
"Typically, deposits grow by 17-18 per cent per annum and loans grow a little slower at 15 per cent, thus facilitating the smooth funding of loans. Another reason for banks raising funds at high rates could be that they are trying to lock into today's going rates with the expectation that rates will go up further," added an analyst.
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