Banks boost term loan rates in year-end war for deposits
MARCH 13, 2007: In A desperate
attempt to beef up their balance sheet before
the year-end, banks are out-bidding each on
deposit rates. Those with large cash reserves
to be parked in deposits are making the best
of the situation by holding auctions and pitting
banks against each other. This year-end desperation
is resulting in a skewed interest rate structure
where short-term deposits earn more. Last
week, ICICI Bank successfully bid for deposits
of Rs 1,400 crore by agreeing to pay 11.35%
in an auction held by BSNL.
Bankers expect the frenzy
for deposits to peak later this month adding
that rates on bulk deposits may well peak
at 12% mark well before the end of this fiscal
year. This is primarily because corporate
deposits are expected to dry after they start
making advance tax payment from March 15.
Over Rs 40,000 crore gets withdrawn from banks
towards payment of advance tax to the government.
IndusInd Bank has offered
to 10% pa for 100 days, but the offer is only
up to end of April. ICICI Bank's offer to
BSNL is about 10 basis points higher than
the going rate a week ago when a corporate
placed 91 days bulk deposits for 11.25%. Most
banks, including State Bank of India, are
offering in the range of 11-11.25% on a three
months to one year bulk deposits.
The other reason why rates
are expected to peak towards end-March is
the redemption pressure. Last year, a number
of banks raised one-year bulk deposits in
March. Banks are trying to lure depositors
into retain these deposits longer by offering
them higher rates. To break the cycle, many
banks are now raising short-term deposits,
mainly for three to six months. This suits
both, the depositor, who worries that interest
rates may rise and the banks, which expect
the pressure for funds will ease next fiscal.
Union Bank's scheme to double
money after eight years and five months received
lower subscription compared to 400 days scheme.
The Union Bank's scheme to double money offered
8.32% while 400 days scheme offers 9.25%.
| Banks |
For
All |
Senior
Citizen |
Tenure |
IndusInd Bank |
10 |
N.A. |
100 Days |
HDFC Bank |
7.5 |
8 |
101 Days |
HDFC Bank |
8 |
8.5 |
6 Mth, 16 days |
Kotak Mahindra Bank |
8.25 |
8.5 |
271 Days |
IDBI Bank |
8.5 |
9 |
300 Days |
IDBI Bank |
9 |
9.5 |
360 Days |
Kotak Mahindra Bank |
9.5 |
9.75 |
1 Year |
ICICI Bank |
9 |
9.5 |
390 Days |
Bank of India |
9.5 |
10 |
400 Days |
Union Bank |
9.25 |
10 |
400 days |
Dena Bank |
9.25 |
9.75 |
499 Days |
Saraswat Co-operative
Bank |
10 |
10 |
15 Months |
ICICI Bank |
9.5 |
10 |
590 Days |
Source: Economic Times
