Banks are experiencing increase in flow of funds in low-cost deposits rather than in bulk deposits.
The reason for increase in the share of low –cost Casa deposits is mainly because of revival in stock markets, economic activity and a fall in term-deposit rates.
As per the latest reports from banks, in most of the public sector banks there has been increase of 20 per cent in the low-cost deposits during the current financial year (2009-10). Whereas during the second half of 2008-09, in Casa deposits flow of funds was low to some extent because of high deposit rates, thus for most of the banks the share of these deposits got reduced. The banks started reducing deposit rates which fell to 6.25-7.5 per cent from 8.75-10.5 per cent, therefore individuals started looking for other investment options rather than investing funds in fixed deposits.
However on current account balances banks do not give any interest, while on savings accounts banks give 3.5 per cent a year.
The increased flow of funds in Casa has helped some of the banks such as ICICI Bank, the country’s largest private sector bank, to increase their Casa base. During July-September alone, ICICI Bank Casa base had increased by Rs 9,000 crore. The reason for increase in the share of Casa in total deposits was mainly due to decline in the deposit base as the bank avoided high-cost deposit from companies. The bank said in spite of rejecting or retiring bulk deposits, the mix between retail and Casa deposits still stand to 50-50.
The sources said focus to increase Casa, by taking certain measures such as higher minimum balance for savings bank accounts, was not completely responsible, it was due to companies moving towards markets for initial public offers (IPO) and assigning to institutional investors (QIPs), funds were transferred to the banking system for a few days. “This was one factor but not the only factor,” ICICI Bank told analysts.
Moreover the banks which saw fall in the flow of funds from sectors such as real estate and gems & jewellery as a result of financial crisis, are witnessing revival of sorts. In the real sector the funds have started flowing due to launch of new projects, gems & jewellery sector is on the path of recovery, an executive with a private sector bank said.
In the public sector banks such as Bank of India, Punjab National Bank and Bank of Baroda there has been 8-10 per cent growth in Casa till September over March. While Union Bank saw the highest growth in Casa in the first six months at 17.8 per cent with Casa accounting for 71 per cent of the incremental deposits since March.
State Bank of India (SBI) country’s largest lender Casa share in total deposits stood at 40.96 per cent at the end of September, the increase of 126 basis points (bps) over the same period of the previous year.
The increase in Casa funds in public sector banks was possible because the government had asked PSBs to provide growth targets for low-cost deposits in their statement of intent for 2009-10. This is the first time such a step was taken, as in previous years the government used to look for overall deposit growth targets. The increase in Casa was mainly done to ensure that banks can keep their cost of funds low, which help the government to bring down the lending rates.
In the recent months, the Reserve Bank of India (RBI) has also shown its concern on the falling level of Casa as banks over the last few years mainly depended on high-cost bulk deposits the funds coming in from companies, including public sector entities.
Over the years, there has been decline in the public sector banks share of Casa in total deposits, which has reduced from 39.95 per cent at the end of March 2006 to 32.66 per cent at the end of March 2009.
“There was a cut in spending in this year and increase in the propensity to save. This was mainly because interest rate on fixed deposits came down drastically and the depositors did not want to lock in their funds in fixed deposits,” a senior executive of a public sector bank said.
In the last one year banks have reduced deposit rates more than 300bps. For instance SBI is offering 6.25 per cent for one-year deposit; a year ago it was as high as 10.5 per cent.
The extension of branches has also helped banks in increasing the low-cost deposits. For instance during the first six months, SBI and Union Bank of Indian have opened 500 and 160 branches, respectively, have been benefited from the expansion.
According to bankers as the public and private sector banks are expanding their branches the share of Casa is likely to rise further.
Friday, November 6, 2009
Wednesday, October 21, 2009
Banks close deposit rates to where they were five years ago
In the last few months the banks have slashed their deposit rates which have shrink depositors income. Banks have reduced interest rates (especially for deposits of up to one year) by about four percentage points in comparison to a year ago.
At present after the cut the deposit rates of 15 days to one-year period range from 3 per cent to 6.25 per cent per annum. Whereas five-and-a-half years ago, in March 2004, the peak rates for this time duration was about 5.25 per cent.
After that the deposit rates began to rise and gradually over the next few years, the deposit rates reached 8 per cent in March 2008.
Moreover banks started lending aggressively as the economic growth started improving.
For aggressive lending banks needed more resources thus they started increasing deposit rates.
However in the bulk market interest rates in the bulk fixed deposits market (deposits above Rs 1 crore) were equally higher by 0.50-1 percentage point. Thus the deposit rates of one-year tenure increased to 10.25 per cent a little over a year ago with the economy moving fast.
The global meltdown undulate also started effecting India, GDP numbers were reduced, as of loan growth figures. The banks also did not require extra liquidity as they had enough.
The investor’s confidence got shaken due to crisis but bank treasury continued to fill up even when they could not find lend-able opportunities for the money pouring in.
For instance State Bank of India for a few months received deposits at the rate of about Rs 1,000 crore a day which led it to set out the bulk money in the Reserve Bank of India’s reverse repo auctions that earned it 3.25 per cent.
Thus banks have been steadily reducing deposit rates for the past few months and now the rates have been closed to where they were five years ago.
After revision State Bank’s one-year deposit is at 5.75 per cent.
However some of the banks have reduced their rates deeper. Punjab National Bank, Union Bank and Indian Bank offer about 5.50 per cent for deposits of similar tenor while Bank of Baroda, a few months ago, pruned them to 5 per cent. While other bank’s deposit rates stand at 6.25 per cent.
At present after the cut the deposit rates of 15 days to one-year period range from 3 per cent to 6.25 per cent per annum. Whereas five-and-a-half years ago, in March 2004, the peak rates for this time duration was about 5.25 per cent.
After that the deposit rates began to rise and gradually over the next few years, the deposit rates reached 8 per cent in March 2008.
Moreover banks started lending aggressively as the economic growth started improving.
For aggressive lending banks needed more resources thus they started increasing deposit rates.
However in the bulk market interest rates in the bulk fixed deposits market (deposits above Rs 1 crore) were equally higher by 0.50-1 percentage point. Thus the deposit rates of one-year tenure increased to 10.25 per cent a little over a year ago with the economy moving fast.
The global meltdown undulate also started effecting India, GDP numbers were reduced, as of loan growth figures. The banks also did not require extra liquidity as they had enough.
The investor’s confidence got shaken due to crisis but bank treasury continued to fill up even when they could not find lend-able opportunities for the money pouring in.
For instance State Bank of India for a few months received deposits at the rate of about Rs 1,000 crore a day which led it to set out the bulk money in the Reserve Bank of India’s reverse repo auctions that earned it 3.25 per cent.
Thus banks have been steadily reducing deposit rates for the past few months and now the rates have been closed to where they were five years ago.
After revision State Bank’s one-year deposit is at 5.75 per cent.
However some of the banks have reduced their rates deeper. Punjab National Bank, Union Bank and Indian Bank offer about 5.50 per cent for deposits of similar tenor while Bank of Baroda, a few months ago, pruned them to 5 per cent. While other bank’s deposit rates stand at 6.25 per cent.
Banks offering low interest rate on term deposits are safer than NBFCs
Before investing your surplus money in term deposits you must consider the safety front while selecting between the bank and a non-banking finance company (NBFC). The bank might offer lower interest rates while the NBFCs offer higher interest rate but from safety point of view banks are safer for investment.
According to wealth managers along with the interest rate differential, there are other factors to be looked up on such as the credit rating of the instrument, the liquidity position of the company, its balance sheet and its sector of operation before make a final choice.
Rajesh Saluja, chief executive officer of Ask wealth pointed out, “Undoubtedly, NBFCs offer higher interest on deposits as compared to banks, but banks do provide much higher safety as compared to any NBFC. A customer who is opting for an NBFC should keep in mind the credit ratings of the company. Unless the credit rating is ‘AA’ or above, a customer should resist from parking their funds in any NBFC”.
Himanshu Kohli, founder of Client Associate also agree with Saluja’s views. He said, “While, a close look at credit ratings is important, it is beneficial for customers if they park their funds in any NBFC only for a very shorter duration.”
While some of the financial planners recommends diversification of deposits. Mukesh Gupta, director Wealthcare Securities said, “Since parking in NBFCs carries a huge risk, one should not park more than 20 to 25 per cent of one’s surplus funds in NBFCs”.
In case you decide to invest with NBFCs then sector of operations should also taken into consideration. An independent financial planner pointed out, “Parking of surplus funds in NBFCs that lend to the real-estate sector can be termed as a more risky proposition compared to NBFCs providing car finance”.
Although most of the banks are offering a maximum of 7.5 per cent interest on certain maturity, whereas some of the NBFC are offering as high as 12 per cent on deposits of similar maturity.
Regarding how safe it would be to invest funds in NBFCs, LP Agarwal, chief general manager of Punjab National Bank said, “If someone is depositing in the stronger NBFCs such as Sriram Finance and Tata Finance, among others, the risk is comparatively lower. But, in general, depositing in NBFCs is risky and one should keep in mind that who is in the management team and their balance sheet, among other things.”
According to H S Saini, general manager, Corporation Bank, “Banks provide higher flexibility to customers. One can break one’s deposit in case of need. But, NBFCs generally do not allow that. Hence, until the interest rate differentials are very substantial, banks deposits are better bets even with lower interest rates”.
According to wealth managers along with the interest rate differential, there are other factors to be looked up on such as the credit rating of the instrument, the liquidity position of the company, its balance sheet and its sector of operation before make a final choice.
Rajesh Saluja, chief executive officer of Ask wealth pointed out, “Undoubtedly, NBFCs offer higher interest on deposits as compared to banks, but banks do provide much higher safety as compared to any NBFC. A customer who is opting for an NBFC should keep in mind the credit ratings of the company. Unless the credit rating is ‘AA’ or above, a customer should resist from parking their funds in any NBFC”.
Himanshu Kohli, founder of Client Associate also agree with Saluja’s views. He said, “While, a close look at credit ratings is important, it is beneficial for customers if they park their funds in any NBFC only for a very shorter duration.”
While some of the financial planners recommends diversification of deposits. Mukesh Gupta, director Wealthcare Securities said, “Since parking in NBFCs carries a huge risk, one should not park more than 20 to 25 per cent of one’s surplus funds in NBFCs”.
In case you decide to invest with NBFCs then sector of operations should also taken into consideration. An independent financial planner pointed out, “Parking of surplus funds in NBFCs that lend to the real-estate sector can be termed as a more risky proposition compared to NBFCs providing car finance”.
Although most of the banks are offering a maximum of 7.5 per cent interest on certain maturity, whereas some of the NBFC are offering as high as 12 per cent on deposits of similar maturity.
Regarding how safe it would be to invest funds in NBFCs, LP Agarwal, chief general manager of Punjab National Bank said, “If someone is depositing in the stronger NBFCs such as Sriram Finance and Tata Finance, among others, the risk is comparatively lower. But, in general, depositing in NBFCs is risky and one should keep in mind that who is in the management team and their balance sheet, among other things.”
According to H S Saini, general manager, Corporation Bank, “Banks provide higher flexibility to customers. One can break one’s deposit in case of need. But, NBFCs generally do not allow that. Hence, until the interest rate differentials are very substantial, banks deposits are better bets even with lower interest rates”.
SBI raised interest rates on corporate loans after reducing deposit rates
Two days back country’s largest lender the State Bank of India (SBI) reduced its deposit rates aggressively. Now the bank has started increasing interest rates on corporate loans by up to 50 basis points.
This measure is a part of bank’s strategy to make sure its net interest margin (NIM) - improves over the next few months.
Net interest margin (NIM) is the difference between the cost of funds and the interest earned.
By June-end bank NIM has dropped to 2.30 per cent, is trying to attain back the 3 per cent comfort zone. Bank executives informed that the lender is expecting NIM to be at 2.55-2.6 per cent by the end of current financial year.
Last year st the peak of the financial crisis bank had mopped up over Rs 1,000 crore-a-day has reduced deposit rates half-a-dozen times during the current financial year. For retail deposits of up to Rs 1 crore, the peak term deposit rate was reduced by 300 basis points to 7.5 per cent over the last 12 months; however it slashed the prime lending rate by 200 basis points to 11.75 per cent.
It is believed in this period the cost of funds will take time to reflect the changes due to sharp slowdown in credit demand which has affected SBI's interest income.
The impact of cut in lending rates on interest income will be visible immediately, whereas the benefit of reducing deposit rates will be visible gradually. According to bank executives the subdued NIM is the reflection of the decline in the credit –deposit (C-D) ratio.
While in September 2008 the high margin was possible as the C-D ratio was 71-72 per cent. but now because of slowdown in credit offtake and fallout of the global financial crisis the ratio has dropped to 67 per cent. A senior SBI executive stated, "Nothing drastic can be done on the interest income side in the short run".
Thus due to subdued credit off-take it became possible for the bank to rework on rates being offered to large companies and mid-size companies in the second quarter. An executive informed, "We have been able to increase lending rates by up to about 50 basis points, especially for those companies that have come up for repricing". The banks are using reset clause in loan agreements to reset interest rates.
The banks say this measure should help in raising up margins marginally. It is believed as the credit off-take continue to rise in third and fourth quarters, the rate charged on fresh credit can be higher and that must boost margins.
Regarding the deposits the headroom available was limited. Also when the credit demand started picking up, liquidity in the system is expected to come down. Besides, the Reserve Bank of India will also start taking measures as part of its strategy to shift to a tighter monetary policy regime. Moreover SBI and other banks will have to raise their rates to counter competition from other asset classes as even the stock market has started showing signs of improvement.
The SBI executives are of view that even though they have to increase rates for retail depositors, the bank’s measures to offer high rates last year has proved helpful in lowering their dependence on high-cost bulk deposits.
To reduce dependence on bulk deposits, the bank introduced a 1,000-day deposit scheme in October 2008, under which it offered 10.5 per cent interest rate with an aim to garner retail resources. But now the bank has withdrawn this scheme.
This measure is a part of bank’s strategy to make sure its net interest margin (NIM) - improves over the next few months.
Net interest margin (NIM) is the difference between the cost of funds and the interest earned.
By June-end bank NIM has dropped to 2.30 per cent, is trying to attain back the 3 per cent comfort zone. Bank executives informed that the lender is expecting NIM to be at 2.55-2.6 per cent by the end of current financial year.
Last year st the peak of the financial crisis bank had mopped up over Rs 1,000 crore-a-day has reduced deposit rates half-a-dozen times during the current financial year. For retail deposits of up to Rs 1 crore, the peak term deposit rate was reduced by 300 basis points to 7.5 per cent over the last 12 months; however it slashed the prime lending rate by 200 basis points to 11.75 per cent.
It is believed in this period the cost of funds will take time to reflect the changes due to sharp slowdown in credit demand which has affected SBI's interest income.
The impact of cut in lending rates on interest income will be visible immediately, whereas the benefit of reducing deposit rates will be visible gradually. According to bank executives the subdued NIM is the reflection of the decline in the credit –deposit (C-D) ratio.
While in September 2008 the high margin was possible as the C-D ratio was 71-72 per cent. but now because of slowdown in credit offtake and fallout of the global financial crisis the ratio has dropped to 67 per cent. A senior SBI executive stated, "Nothing drastic can be done on the interest income side in the short run".
Thus due to subdued credit off-take it became possible for the bank to rework on rates being offered to large companies and mid-size companies in the second quarter. An executive informed, "We have been able to increase lending rates by up to about 50 basis points, especially for those companies that have come up for repricing". The banks are using reset clause in loan agreements to reset interest rates.
The banks say this measure should help in raising up margins marginally. It is believed as the credit off-take continue to rise in third and fourth quarters, the rate charged on fresh credit can be higher and that must boost margins.
Regarding the deposits the headroom available was limited. Also when the credit demand started picking up, liquidity in the system is expected to come down. Besides, the Reserve Bank of India will also start taking measures as part of its strategy to shift to a tighter monetary policy regime. Moreover SBI and other banks will have to raise their rates to counter competition from other asset classes as even the stock market has started showing signs of improvement.
The SBI executives are of view that even though they have to increase rates for retail depositors, the bank’s measures to offer high rates last year has proved helpful in lowering their dependence on high-cost bulk deposits.
To reduce dependence on bulk deposits, the bank introduced a 1,000-day deposit scheme in October 2008, under which it offered 10.5 per cent interest rate with an aim to garner retail resources. But now the bank has withdrawn this scheme.
Thursday, September 10, 2009
SBI reduced rate on 1000-day deposit scheme only
Country’s largest bank, State Bank of India (SBI) has reduced its interest rate on its special 1,000 day fixed deposits with an aim to protect its net interest margin. The bank has reduced rates on 1,000-day deposit scheme by 25 basis points to 7%. With this reduction the SBI deposit rates will be at par with other public sector banks in the industry. The bank has not introduced cut on any other time slab. The revised rates will be effective from September 8.
Since the launch of 1000-day deposit scheme SBI has witnessed maximum collection thus with the cut in the rates in this scheme bank will be able to reduce its interest cost considerably. Earlier SBI was offering 7.25% on its 1000-day scheme which was slightly higher in comparison to the rate being offered by most of its peers in the industry for that period (for 1000 day or between two to three years).
Whereas most of the large banks had reduced their deposit rates few weeks back. Big banks like Union Bank of India, Punjab National Bank and ICICI Bank are offering 7% for two to three years (which is comparable to 1000 day deposits), while Bank of Baroda has reduced rates to 6.5% and HDFC Bank is offering 6% for the same period.
According to bank analyst SBI’s margin- the difference between the cost of funds and yield on advances, have been under pressure due to slowdown in credit growth. For quarter ending June 09, bank net interest margin stood at 2.3%, which is down by 63 basis points over March 09. Earlier SBI officials had given indications that in the second quarter no significant improvement can be expected in the margins.
Recently in an interview with media, O P Bhatt had stated that due to poor demand in credit SBI has been parking over Rs 65,000 crore daily with the Reserve Bank of India’s reverse repo window which gives a return of 3.25%.
Since the launch of 1000-day deposit scheme SBI has witnessed maximum collection thus with the cut in the rates in this scheme bank will be able to reduce its interest cost considerably. Earlier SBI was offering 7.25% on its 1000-day scheme which was slightly higher in comparison to the rate being offered by most of its peers in the industry for that period (for 1000 day or between two to three years).
Whereas most of the large banks had reduced their deposit rates few weeks back. Big banks like Union Bank of India, Punjab National Bank and ICICI Bank are offering 7% for two to three years (which is comparable to 1000 day deposits), while Bank of Baroda has reduced rates to 6.5% and HDFC Bank is offering 6% for the same period.
According to bank analyst SBI’s margin- the difference between the cost of funds and yield on advances, have been under pressure due to slowdown in credit growth. For quarter ending June 09, bank net interest margin stood at 2.3%, which is down by 63 basis points over March 09. Earlier SBI officials had given indications that in the second quarter no significant improvement can be expected in the margins.
Recently in an interview with media, O P Bhatt had stated that due to poor demand in credit SBI has been parking over Rs 65,000 crore daily with the Reserve Bank of India’s reverse repo window which gives a return of 3.25%.
Wednesday, September 2, 2009
Tata Motors to raise funds by re-launching fixed deposit scheme
Tata Motors is again announcing fixed deposit (FD) scheme to raise up to Rs 1,500 crore. The company will be launching the scheme for shareholders and the public. Tata Motors chairman Ratan N Tata at the annual general body meeting of the company in Mumbai informed shareholders, “We will just be announcing the revised FDs scheme.”
Addressing the reporter after Tata’s AGM with shareholders, Tata Motors chief financial officer C Ramakrishnan said, “Till now we have raised around Rs 2,500 crore through the existing FD scheme. After the new accounting norms that came into effect from April 1, the cap on borrowings through fixed deposits has gone up from Rs 2,700-Rs 2,800 crore to Rs 4,000 crore. So now we can raise additional funds through the deposit scheme.
The revised scheme will open for shareholders and public on Wednesday.”
Currently Tata Motors is giving 8.75 per cent interest on deposits of Rs 20,000 for a period of three years. The company’s aim to launch FD scheme was to raise funds to repay the $2.3 billion bridge loan after the possession of Jaguar and Land Rover in 2008. Later on company reduced the interest rates on cumulative fixed deposits of Rs 20,000 for three years from 12 per cent to 8.75 per cent.
The industry officials informed that Tata Motors is likely to increase the rate of interest up to a competitive level of Mahindra Finance’s ongoing scheme. Mahindra Finance is offering 10 per cent interest on a minimum deposit of Rs 10,000 for a period of three years. However most of the public and private sector banks have recently reduced their deposit rates. India’s top two banks - State Bank of India and ICICI Bank are offering interest rates around 7.25 per cent to 7.5 per cent on fixed deposits with five-year maturity.
An analyst with Mumbai-based brokerage informed Tata Motors is likely to invest the funds being raised through FD scheme, to meet the capital expenditure and technology up-gradation requirements of the company and JLR
Addressing the reporter after Tata’s AGM with shareholders, Tata Motors chief financial officer C Ramakrishnan said, “Till now we have raised around Rs 2,500 crore through the existing FD scheme. After the new accounting norms that came into effect from April 1, the cap on borrowings through fixed deposits has gone up from Rs 2,700-Rs 2,800 crore to Rs 4,000 crore. So now we can raise additional funds through the deposit scheme.
The revised scheme will open for shareholders and public on Wednesday.”
Currently Tata Motors is giving 8.75 per cent interest on deposits of Rs 20,000 for a period of three years. The company’s aim to launch FD scheme was to raise funds to repay the $2.3 billion bridge loan after the possession of Jaguar and Land Rover in 2008. Later on company reduced the interest rates on cumulative fixed deposits of Rs 20,000 for three years from 12 per cent to 8.75 per cent.
The industry officials informed that Tata Motors is likely to increase the rate of interest up to a competitive level of Mahindra Finance’s ongoing scheme. Mahindra Finance is offering 10 per cent interest on a minimum deposit of Rs 10,000 for a period of three years. However most of the public and private sector banks have recently reduced their deposit rates. India’s top two banks - State Bank of India and ICICI Bank are offering interest rates around 7.25 per cent to 7.5 per cent on fixed deposits with five-year maturity.
An analyst with Mumbai-based brokerage informed Tata Motors is likely to invest the funds being raised through FD scheme, to meet the capital expenditure and technology up-gradation requirements of the company and JLR
Thursday, August 13, 2009
IDBI Bank revised interest rates on deposit, auto loans
IDBI Bank announced cut in interest rates on deposits by 25 basis points to 50 basis points (quarter to half a percentage point) across different maturities. The revised rates will come into effect from August 12.
The bank has also reduced 1% point in lending rates for auto loans.
The bank for up to six months did not change rates for deposits and all changes are for duration beyond six months. In most of slabs, the reduction is only 25 basis points, or quarter of a per cent, but in case of a few slabs, the drop is 50 basis points, or half a per cent.
While the interest rate for deposit of one year to two year will be 6.75 per cent against 7.25 per cent at present.
The bank is offering the highest rate of 8% for deposits for the duration of seven to 10 years.
The bank has also revised its lending rate on auto loans and has reduced it down by one percentage point. As per revised fixed rate of interest for a three year tenor will range from 10.50 per cent-12 per cent and for five years between 10.75 per cent and 13 per cent.
The bank has also reduced 1% point in lending rates for auto loans.
The bank for up to six months did not change rates for deposits and all changes are for duration beyond six months. In most of slabs, the reduction is only 25 basis points, or quarter of a per cent, but in case of a few slabs, the drop is 50 basis points, or half a per cent.
While the interest rate for deposit of one year to two year will be 6.75 per cent against 7.25 per cent at present.
The bank is offering the highest rate of 8% for deposits for the duration of seven to 10 years.
The bank has also revised its lending rate on auto loans and has reduced it down by one percentage point. As per revised fixed rate of interest for a three year tenor will range from 10.50 per cent-12 per cent and for five years between 10.75 per cent and 13 per cent.
Subscribe to:
Posts (Atom)
