While public sector banks are sharply cutting down on bulk deposits to reduce their cost of funds,they are facing difficulty in replacing them with lower-cost deposits from retail customers. Bank of Baroda saw a dip of R4,000-5,000 crore in its deposit base while trying to bring down the proportion of bulk deposits to 15%,which was only partly compensated with retail deposits. While reducing the bulk deposits,we might have lost a net R4,000-5,000 crore of deposits. From the bulk deposit category itself,we have lost R17,000 crore, said SS Mundra,CMD of Bank of Baroda. Last year,the finance ministry had asked PSU banks to cut down their proportion of high-cost deposits (bulk deposit and certificates of deposit) to 15%. Banks like Canara Bank and OBC have drastically reduced the contribution of bulk deposits in their deposit mix as well. In the last four quarters,Canara Bank's bulk deposit and CD contribution has fallen from 45% to 25%,while Oriental Bank of Commerces (OBC) bulk deposits have fallen from 26% to 20%. PNB has reduced these from 23% to 12.5% in the same period. Canara Bank reduced its bulk deposit by R96,500 crore,but growth in its current and saving account (Casa) deposit was just R4,899 crore. Similarly,PNB shed around R40,000 crore of high-cost deposits in FY13,but Casa deposits increased by just R19,215 crore. PNBs overall deposit growth was 3.15%. Meanwhile,OBCs bulk deposits fell 17.11% or R7,358 crore while Casa grew by a lower amount of R5,556 crore. Besides this,the term deposit growth has been slow across banks as shown by RBIs data. For the fiscal ended March 31,2013,time deposits grew by about 14%,while for the fortnight ended May 31,time deposit growth slipped below 14%. We are not able to replace all the bulk deposits with retail deposits. But since advance growth is not so much,we are not facing a cash crunch. Whenever we will need cash we will go to the CD market, a Canara Bank executive said. Bankers say the focus on reducing bulk deposits as a way to bring down cost of funds will continue as rising non-performing loans are impacting net interest margins for banks. At the same time,lower credit growth will allow banks to shift their deposit mix without the fear of a liquidity crunch. They want to lower their pricing as banks are under pressure for margins as NPAs are rising and no interest is served on those accounts. The environment does not allow for finding yields,so banks are looking for margins by lowering their cost of deposits, said a banker,who did not want to be named. For the fortnight ended May 31,deposits grew at 13.41% to R69,66,529 crore in the banking system,according to the latest RBI data.
