Public sector lender Bank of Baroda (BoB) plans to shed bulk deposits amounting to Rs 18,000 crore by the end of March, to bring stability to its funding profile and to improve interest margins. Bulk deposits due have already declined to Rs 50,000 crore by January-end from Rs 57,000 crore in December 2012.
According to senior BoB officials, the share of bulk deposits could decline by 10 per cent, below the floor level indicated by the government to state-owned banks.
In July 2012, the government had asked public sector banks to bring down their share of bulk deposits to 15 per cent by March 2013. It was a clear fallout of the drive by the then financial services sector secretary D K Mittal, to rework the banks' funding profile, to control finance costs and bring stability to resource.
Banks' margins came under pressure in the third quarter (Q3) ended December 2012. BoB's yield on domestic advances dipped from 12.01 per cent in the quarter ended December 2011 to 11.57 per cent for Q3 of 2012-13.
However, the cost of funds went up to 7.33 per cent in Q3 from 6.90 per cent. This was one factor that impacted margins in Q3.
The domestic net interest margin (NIM) declined to 3.08 per cent from 3.51 per cent a year ago. Banks expect to maintain domestic NIMs at above three per cent in the fourth quarter (ending March 2013), said BoB's Chairman and Managing Director S S Mundra.
Total deposits rose 18.8 per cent, year-on-year, to Rs 4,14,733 crore. The share of low cost deposits (current and savings deposits or Casa) in the domestic business was 32.2 per cent.
The re-pricing of bulk deposits which come up for maturity in the quarter is expected to happen at lower rates, as interest rates have softened. Treasury executives across banks said credit demand was weak and very few banks were raising money to meet March targets. So, there is less pressure to raise funds at higher rates.
This time (Q4 of FY13), short-term bulk deposits are being raised at the 8.75-9.5 per cent band. During the fourth quarter of FY12, banks were contracting short-term bulk money at 10-11.15 per cent.
BoB does not expect to face any liquidity pressure while it sheds bulk deposits. It currently has four-five per cent excess portfolio of statutory liquidity ratio (SLR) securities.
At present, banks have to maintain an SLR ratio at 23 per cent of net time and demand deposits.
This excess liquidity can be used to support liquidity requirements, said Nomura Securities in a research note.