Restrict banks from bidding for PSU bulk deposits: ministry to RBI

PSUs with cash balances of about Rs 3 lakh crore often get higher rate for these deposits due to informal bidding process, thus driving up credit costs of banks

GN Bureau | September 16, 2013



The finance ministry has directed the Reserve Bank of India (RBI) to take measures to curb the participation of banks in the bidding of bulk deposits by cash-rich public sector undertakings. The move, a first of its kind, is aimed at keeping the cost of credit low, which the finance ministry feels is hiked due to such aggressive bidding by banks.

According to a report in The Economic Times, PSUs, which have cash balances of about Rs 3 lakh crore, often get a higher rate for these deposits due to a bidding process which is done informally.

The apex bank has been trying to deal with this problem for some time now. Also, in its 2012-13 monetary policy it had highlighted that there existed a huge disparity between the banks’ retail and bulk deposits which gave an unfair advantage to bulk depositors.

Earlier, bulk deposits of Rs 15 lakh and above attracted higher interest rates compared to retail deposits having the same maturity. The apex bank had however, increased this limit to Rs 1 crore in April. In addition, banks are required to maintain a “minimal” difference in interest rates offered to term and retail deposits but what constitutes “minimal” remains ambiguous.

“At present the onus is on the bank's board to approve a transparent policy on pricing of liabilities but business matters force banks to overlook such norms,” a finance ministry official told the paper. The official added that once “minimal” is defined, then banks will not have an option but to offer the rates within the specified range.

Meanwhile, an official from the department of public enterprises (DPE) said that they have already taken the necessary steps to discourage PSUs from inviting bids for their deposits.

PSUs, on the other hand, feel that targeting them is unfair as private companies, which also deposit their cash balances with banks for shorter durations, get high interests. Banks have however, maintained that the move will encourage PSUs to undertake capital expenditures instead of only relying on idol cash deposited in banks for higher profits.

Comments

 

Other News

Sedition law: Can it have a place in democracy?

Does the concept of sedition have a place in modern democracies? This question became more relevant when the apex court recently put the country`s colonial-era sedition law on abeyance stating that there is a “requirement to balance… security interests and integrity of the State… and th

Not just another Manto anthology

The Collected Stories of Saadat Hasan Manto: Volume 1: Bombay and Poona Translated by Nasreen Rehman Aleph Book Company, 548 pages, Rs 999 There are writers, there are writers’ writers, and then there are readers’ writers. Saadat Hasan Mant

These tribal women may be illiterate but are successful entrepreneurs

Meet Promila Krishna, 39, Lalita Nayak, 40, Parbati Gadba, 42, Sanadei Dhuruwa, 39, and Nabita Barika, 41, of Kundra block in Odisha’s Koraput district. Except for Promila who is a matriculate, others haven’t attended school beyond the elementary level. However, while introducing themselves to

Women in workforce: Despite policy support, why it is declining

Michelle Obama once said, “No country can ever truly flourish if it stifles the potential of its women and deprives itself of the contributions of half of its citizens.” That should be so obvious, but it is not, and countries keep depriving themselves of the contributions of half of their popul

Chintan Shivir 2022: Will Congress regain its lost mojo?

The Congress is scheduled to hold a Chintan Shivir (meaning, ‘introspection camp’) from May 13th to 15th in Udaipur and it has identified six specific areas for introspection. These are 1. Political 2. Social Justice and Empowerment 3. Economy 4. Organization 5. Farmers and Agriculture and 6. Y

Role of civil society organisations in governance and CSR

India has the largest share of the deprived and the marginalized among the 1.3 billion-plus, out of the 7.9 billion-plus inhabitants of the world, who are said to be living without shelter or basic amenities required for human existence. Clearly, we need to introspect as to why despite being the fourth or

Visionary Talk: Arvind Sawant, Member of Parliament with Kailashnath Adhikari, MD, Governance Now


Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter