MUMBAI, January 28: With the recent hike in short-term deposits by private and foreign-owned banks, nationalised banks, which have hiked their rates only marginally, are losing their retail depositors to them, bankers said.Even large depositors like financial institutions (FIs) are shifting their short-term deposits and parking them with a few private banks, said a senior ICICI Bank official. These banks are raising short-term deposits of up to 90 days at interest rates of 12-17.5 per cent to tide over their funds crisis, instead of borrowing via the inter-bank call-money market at above 50 per cent. On the other hand, nationalised banks are borrowing from high net worth clients through certificate of deposits (CDs) at 17-20 per cent yields, instead of borrowing in call and thus ignoring small-time depositors.
With small depositors losing out to the nationalised banks' cautious approach, foreign and private-owned ones are offering them some solace and at the same time borrowing funds cheap, aforeign-owned bank's treasury head said.
Although the call rates fell from 50 per cent and ended at 11 per cent on Wednesday, many bankers felt they would sustain the higher levels seen in the last 10 days or so. Treasury heads said the rates fell largely because it was the penultimate day for banks to meet the Reserve Bank of India's statutory reserve requirements and not because of ample liquidity. But they feel the interest rates are likely to be on the higher side till March. Till then the rush to get short-term deposits by foreign and private-owned banks will continue.
``There is every possibility of small clients moving over to these banks that are offering higher deposit rates and some of them have already begun,'' said a senior banker at a nationalised bank. ``We are losing out our clients we havenurtured so far, and they were earlier ignored by the banks that only catered to the rich,'' he said.
``These banks will soon show them the door once their purpose is met and interest rates startdeclining, and they (retail depositors) will be back with us,'' the banker added.
The flight of deposits from government banks to the aggressive foreign and private-owned ones is largely restricted to the metros, bankers said. Nationalised banks still enjoy a large share of deposits mainly because of their large network of branches across the country.For a short-term deposit of up to 90 days, foreign and private-owned banks offer between 12 per cent and 17.5 per cent against nationalised banks' 10.5-12.0 per cent.
Scotiabank, for instance, is offering a rate of 15 per cent interest for deposits of 30 days to 90 days.While there is transfer of funds from one bank to the other, the overall liquidity remains the same and the market is not likely to witness any downtrend in rates.
Bankers at nationalised banks do not, however, feel the need to hike deposit rates to keep in tune with their rivals. They feel there is an element of risk involved if the interest-rate trend reverses.``The rates will softensoon, but when is the moot point. Till then we shall continue to woo depositors aggressively,'' said an American Bank's treasury head. u
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
