Competitive bidding for PSUs' bulk deposits result in unhealthy hike deposits rate :FM
By Neelima Shankar
Jul 23, 2012
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Finance Ministry wants central public sector enterprises(CPSE)/PSUs to stop iniviting competitive bids from bank for depositing their funds. According to finance ministry, this results in an unhealthy competition and undesirable hike in interest rates. Finance ministry recently capped bulk deposits at 15% of the total deposits of a particular bank.

Finance ministry has come up with a solution for this, by depositing with the banks with which the PSU have regular business this problem can be overcome. There is around Rs. 1.2 lakh crore with 20 CPSE and most of which is deposited in the banks.

Invitiation of competitive bids result in arbitrary hike of interest rates. CPSE should therefore go for card rates and park their deposits under the bulk deposits with their regular banks. Department of Public Enterprises (DPE) in 2008 had suggested PSBs for a uniform card rate for bulk deposits of upto 1 year to bring uniformity.

However some officials think that competitive bidding is more fair as it removes favoritism and human discretion.

Previously Department of Financial Services (DFS) had written to DPE to stop CPSE to invite bids for bulk deposits.

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