The Hindu Business Line : Banks resume mop-up through bulk deposits

Bankers said that the bulk deposits were raised from corporates with temporary cash surpluses. They said that the funds were mostly time deposits parked for a maximum period of about 46 days. These were later renewed at the time of maturity. They said the accretion of these deposits was partly responsible for the liquidity build-up during the current week, when some of the maturing funds were renewed.

However, bankers said that even these renewals were made through the bid route by some of the public sector entities, particularly large power and oil companies. Besides life insurance companies, mutual funds were also parking funds in the banks for short durations till deployment in the equity or debt markets. Bankers said that the rise in liquidity also owed to some surge in inward flows, from foreign currency capital receipts raised bydomestic financial institutions and inward remittances.

Reverse repurchase

Since the beginning of the week, the mop-up through reverse repurchases by the Reserve Bank of India has been on the increase as a result of the liquidity build-up. Reverse repurchase implies the RBI places securities with commercial banks to remove excess liquidity. At the beginning of the week, the amounts raised through the reverse repurchase auctions were barely Rs 13,685 crore. At Thursday's auctions, the mop up was Rs 17,405 crore.

Bulk deposits

Bankers said that some of the bulk deposits were priced close to 8.5 per cent, well over the maximum time deposit rates. Deposits are currently growing at 22 per cent on a year-on-year basis. But this pricing, the bankers said, would have little effect on the weighted average deposit rates. This was largely due to expected build-up of retail deposit during the year. Besides, for the PSU banks, even on the basis of the current retail deposit base the weighted average costs still remained close to about 5 per cent.

Consequently the high-cost fund raising would have little impact on the net interest margins of the bank, they added, as lending rates have also increased. Besides, with fresh accretions of low-cost retail deposits, the bulk deposits would be refinanced.

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