As public sector banks are ahead of their private peers in terms of market share, most of the investors including the country's largest IT firm, Infosys Technologies have parked majority of their funds with these banks.
While announcing the results of its third quarter, Infosys stated that in the past nine months it has shifted the bulk deposits from private sectors banks to PSU banks including State Bank of India, Punjab National Bank and Syndicate Bank. Bankers in the industry attribute this move to the high deposit rates offered by the PSU banks.
Until the end of November, PSUs were offering up to 4% more on the bulk deposits in order to kick off resources for meeting the increasing demand of loans.
Following the global financial turmoil, domestic demand for loans rose in the second half of September and most private sector banks withdrew from the market at that point with a view to take a cautious move. For instance, ICICI Bank that was offering higher interest rates on bulk deposits till last year pulled out from that segment because they were trying to slow down their lending and reduce the cost of deposits. Thus most funds were directed towards the PSUs.
A senior executive of SBI said that post-September, there was a substantial movement of funds to PSBs. "As the uncertainty rose, a lot of people moved to SBI. Besides, the quality of service offered to corporate customers is now comparable with any private sector bank," the executive added.
Syndicate Bank Chairman and Managing Director, George Joseph informed that most of the deposits of Infosys were bulk deposits. "We had Infosys deposits before March. It is a long-term relationship. We are a strong bank, which enjoys public confidence," added the CMD.
A senior executive with Canara Bank said, "You should not read too much into it. All I can say is we are happy that companies such as Infosys are coming to us."
Moreover the latest data produced by RBI for the period between April and September clarifies that the share of deposits business of nationalized banks rose to 48.6% against 47.9%, a year ago. During this period SBI and its associates recorded a growth 23.2 % in the deposit front as compared to 22.6% at the end of September 2007.
Conversely the deposit share of private and foreign banks declined during the first half of fiscal ending on September 2008.
However in December the PSU banks cut their bulk deposit rates to 9.5% to reduce lending rates as well as the cost of funds. The move was taken in the wake of RBI constantly cutting the interest rates.