The Indian government has asked state-run banks to reduce their reliance on high-cost bulk deposits and certificates of deposits (CDs), forcing lenders to find alternate sources of funding and drawing complaints from some.
A letter sent to state banks and obtained by Reuters asks them to reduce bulk deposits to 10 per cent of the total and CDs to 5 per cent by September. Many state banks source roughly 20 to 30 per cent of their deposits through bulk deposits and CDs, according to data included in the letter.
The initiative is intended to improve asset-liability management and reduce reliance on high-cost funds, but some bank executives said it was unnecessary meddling that could crimp lending.
“This is total interference in the working of banks,” said one senior executive at a state bank who had received the letter dated July 2, but declined to be identified because the matter is not public.
The government defines bulk deposits as those with short terms and rates that are higher than retail deposit rates.
State lenders, led by State Bank of India (SBI), account for roughly 70 per cent of banking business in India.
Banks in India hold a combined 4 trillion rupees ($73.7 billion) of CDs, which make up about 6.5 per cent of deposits.
At one small state lender, Punjab and Sind Bank, bulk deposits and CDs account for 60 per cent of total deposits, the letter to state bank CEOs said.
At SBI and its associate banks the total is just 13 per cent, while at Andhra Bank the total is 25 per cent.