State-owned commercial banks are expected to garner at least Rs 20,000 crore of additional bulk-deposits from public sector enterprises following an advisory from the finance ministry that government-owned companies should park their surplus cash with state-controlled banks.
These public sector enterprises hold between 10 and 40 per cent of their cash with private banks. This development comes at a time when a few private sector banks are not accepting bulk deposits, which typically attract high interest.
The 45 listed public sector firms alone have cash and bank deposits of Rs 1,13,500 crore as of March 2008, according to Capitaline data. This excludes unlisted entities like state-owned telecom major BSNL Ltd, Coal India Ltd and Oil India Ltd.
The amount of Rs 20,000 crore was arrived after talking to six companies that collectively account for nearly 75 per cent of total deposits of listed state-owned firms and are planning to move between 10 per cent and 40 per cent of their desposits to public sector banks.
At present, officials of state-run companies say private banks offer interest that is two percentage points higher than the public sector banks offer. Thus, a shift of Rs 20,000 crore away from private banks would mean that the state-run companies will lose at least Rs 400 crore on an annualised basis.
Oil and Natural Gas Corporation, India's largest oil producer and the highest profit-making public sector company, has decided to transfer its entire Rs 25,000 crore of deposits to State Bank of India, ONGC's largest banker.
"Our board has decided that the entire deposits will now be with State Bank," confirmed a senior ONGC official.
The oil producer has around 15 per cent of its deposits in private sector banks.
"Deposits with the private banks have come down in the last month," admitted a SAIL official, but did not specify how much SAIL banks mainly with Bangalore-headquartered Canara Bank. The steel maker, with the third-largest cash balance among the listed state-run firms, had around 15 per cent of its deposits with private sector banks at the end of September 2008.
The finance ministry advisory came a month ago. The ministry had also said the companies cannot call for competitive bidding on interest rates and will have to make deposits with the bank with which they have had prior banking experience.
A couple of months ago ONGC called for interest rate quotations on Rs 1,000 crore it wanted to deposit. Indian Oil Corporation, which is going through a liquidity crisis, quoted more than banks and took the deposits by agreeing to pay interest at over 11 per cent.
The move by the finance ministry comes at a time when the country's banking system is facing a liquidity crisis with credit to firms drying up. The government has been trying to raise cash with banks which will help them lend to companies.
"With public sector companies depositing primarily with state-owned banks the government will get a freer hand in asking the banks to lend. But this affects the interest earnings of the public sector companies," said a Mumbai-based analyst.
A senior official of Powergrid Corporation of India Ltd, India's largest power transmission utility, agreed that the finance ministry circular will result in two percentage points drop in interest earned on deposits. At present, PGCIL has 60 per cent of its cash surplus with public sector banks and most of their deposits have a shorter tenure of 30-90 days.
However, Coal India Ltd said they already comply with finance ministry directive and plan not to shift the deposits, said Partha S Bhattacharyya, chairman of Coal India.
Coal India, which is not yet listed in stock exchanges, along with subsidiaries have a total deposits of Rs 17,000 crore, with three-fourth deposited with public sector banks. Internally, the company has put a cap of 25 per cent on deposits with private banks.
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