NEWS & ADVICE : FIXED DEPOSITS
FinMin wants to caps bulk deposits at 10% of total deposits; 5% ceiling for CDs
By Neelima Shankar
Jul 5, 2012
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Finance Ministry has notified public sector banks across the nation to reduce their bulk deposits as a ratio of their total deposits. This directive comes in view of the practice of banks, which take bulk deposits and certificate of deposits (CDs) from companies at very high interests.

These deposits generally kept by the large companies and corporates offer interest of as high as 12% per annum. The new rule would mean the banks can take a maximum of 10% of bulk deposits and 5% of CDs.

These instrument are essential for banks and constitute upto 30% of total deposits in some cases and are essential for the working capital requirement of the lenders. IDBI Bank, Punjab and Sind Bank, and Bank of Baroda were leading banks taking such deposits

The move has received a negative response from bankers, stating this would destabalize the asset-liability match of the banks, and could result in liquidity crunch. But the central government wants to curb the practice of banks which raise bulk deposits in March every year to inflate business. This also causes fluctuations in interest rates,

Off late, the Finance Ministry had interfered frequently with the working of banks and RBI, a move which is not taken well both by the banks and the regulator, which even wrote the letter to the government. Last month the two differed over opinions on Financial Inclusion.


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