Bankers mopping up funds on FDs

Banks are offering attractive deposit rates to sell fixed deposit (FD) schemes like never before to wipe out funds from depositors. They are advertising attractive deposit rates through lining up road shows and door-to-door campaigns and on the other hand also trying to stay away from high-cost bulk deposits. Some of the banks are also offering incentives to their employees to persuade depositors.

Consequently bankers are saying they expect to wipe up more than 20 per cent of what they usually do during November. This month most of the banks have increased the deposit-mobilization drive as most of them have announced that they will be reducing interest rates from December. Currently, most public sector banks have announced high interest rates up to 10.50 per cent, and 11 per cent for senior citizens, on one- to three-year deposits.

“It is a matter of raising resources. We have decided to reduce interest rate on bulk deposits, which (their share in the total portfolio) are expected to come down. Most banks have decided that they will not pay over 9.5 per cent on bulk deposits,” said United Bank of India Chairman and Managing Director S C Gupta. “We will take a call if we will reduce rate of interest on retail term deposits by December so that our retail customers are not affected,” he added.

The United bank has launched a special campaign called Rainbow; under this scheme its branches are offering reward points for gathering retail deposits. It has set a target of acquiring Rs 5,000 crore of retail-term deposit by March 2009.

In the previous month Allahabad Bank had introduced Diwali Bonanza scheme for a limited period, under which it offered 10.5 per cent on term deposits of one to three years. Though the bank will be reducing rates but the scheme is still on.

“When all our competitors were offering high interest rates, it was very difficult for us to attract retail customers. So, we were a bit late in increasing interest rates. We tried to motivate our employees to get more retail customers and started campaigns for mobilizing saving accounts, term deposits and recovery,” said a senior executive at Allahabad Bank.

“During November, there is more than a normal increase in the number of fixed deposits. Next month, we will take a view on when to reduce deposit rates,” said a senior UCO Bank executive.

“People are hurrying to park funds as they expect a rate cut in December. Also, due to the financial turmoil, many people are transferring funds from private banks to public sector banks. As a result, there has been a very significant increase in the number of FDs,” a Syndicate Bank executive said.

ON A ROLL Top ten public sector banks
(Rs crore)	Deposits		Advances
	2007	2008	2007	2008
State Bank of India	4,35,521.09	5,37,403.94	3,37,336.49	4,16,768.20
Punjab National Bank	1,39,859.67	1,66,457.23	96,596.52	1,19,501.57
Canara Bank	1,42,381.45	1,54,072.42	98,505.69	1,07,238.04
Bank of Baroda	1,24,915.98	1,52,034.13	83,620.87	1,06,701.32
Bank of India	1,19,881.74	1,50,011.98	85,115.89	1,13,476.33
Central Bank of India	82,776.28	1,10,319.67	51,795.47	72,997.43
Union Bank of India	85,180.22	1,03,858.65	62,386.43	74,348.29
Syndicate Bank	78,633.57	95,170.80	51,670.44	64,051.01
Indian Overseas Bank	68,740.41	84,325.58	47,060.29	60,423.84
Uco Bank	64,860.01	79,908.94	46,988.91	55,081.89

The effect of special high deposit rates can be seen clearly. Union Bank of India has collected Rs 5,000 crore through its 900-day deposit scheme, by offering 10.5 per cent interest. “We closed the scheme recently, but our retail deposits have grown by over 25 per cent during the present financial year compared with 10-15 per cent in the corresponding period last year,” said S Govindan, general manager (personal Banking and operations), Union Bank of India. Till now in 2008-09, the bank has acquired Rs 11,000 crore through retail deposits.

Likewise Bank of India’s campaign from October till the end of December is focused on on retail deposits of up to Rs 15 lakh has been able to collect around Rs 3,000 crore so far. “We hope to add another Rs 500 crore over the next one month,” said Bank of India Executive Director B A Prabhakar.