|Reserve Bank of India and finance ministry have had directed state owned banks to not bid for bulk deposits. Banks have a general practice of inviting bulk deposits at the end of the quarter to meet their projections, which results in sudden upward movement of short term rates.
During the last week's meeting of senior bankers and P. Chidambaram, concerns were raised on the spurt in short duration fixed deposit rates at the end of quarters. RBI Deputy Governor, Dr. KC Chakrabarty told the banks that such a practice should be avoided, since its not followed anywhere else.
The banks already have their targets to reduce their bulk deposits to 10% and certificate of deposits to 5% by end of the fiscal.
With banks like Corporation Bank, which have as high as 40% in bulk deposits, the banks have asked ministry some more time to meet the deadline. The ministry is not in favor of bulk deposits mainly due to the high cost of funds and also variances in interest rates. Another senior banker stated that if the banks can curtail the bulk deposits, the benefits can be passed on to the consumers by lower lending rates.