FD surge puts PSU banks in a fix

Public sector banks have registered a much higher growth in term deposits, on which customers earn higher interest, than savings accounts that earn less and current accounts that earn no interest, Mahua Venkatesh reports.

Public sector banks, which have seen a huge surge in deposit growth in 2008-09, have a new cause for worry. These banks have registered a much higher growth in term deposits, on which customers earn higher interest, than savings accounts that earn less and current accounts that earn no interest.

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Savings and current account deposits help banks lower their borrowing costs, and banks face a new challenge in managing expenses while facing government pressure to lower lending rates. With stock markets taking a knock in 2008, savings that otherwise courted real estate and stocks are coming into fixed deposits.

“Last fiscal, we have seen a huge growth in term deposits as people chose to park their funds in banks, considered a safer investment option at a time when volatility has become the order of the day,” a PSU bank chairman told Hindustan Times.

In the April to September period, most banks saw a decline in low-cost deposits as a share of total deposits. State Bank of India, Bank of India, Punjab National Bank, Punjab and Sind Bank and Oriental Bank of Commerce that witnessed a decline in current and savings deposit shares during this period.

“The focus for us has always been to increase low cost deposits but if we have customers who want to park their funds in banks, there is no way we can refuse them,” another bank chief said.