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    Innovative Deposits: Focus on innovative deposits for low-cost funds: FM to PSBs

    Innovative Deposits: Focus on innovative deposits for low-cost funds: FM to PSBs


    NEW DELHI: With public sector banks losing share of current and savings account business, finance minister Nirmala Sitharaman has asked state-run bank chiefs to focus on innovative deposit instruments so that they can raise lower-cost resources to meet their financing requirements.
    The minister once again flagged the issue at a meeting with public sector bank chiefs on Saturday with sources saying that she wanted the lenders to focus on their “core activity”. In recent months, the share of CASA in bank deposits has come under pressure as depositors have been parking funds in fixed deposits, which are offering high returns. Some of the new generation private banks, for instance, are offering over 9% on certain tenures of term deposits.
    What has compounded the problem for public sector banks is their decision to lower the interest rate on savings bank deposits at a time when some of the private banks have opted to offer higher rates to corner a bigger share of this business.

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    In recent years, public sector banks have also lost out on salary accounts of large companies to their private sector rivals. The fall in the share of CASA has been accentuated by the government moving to “just in time” fund release, with the state-run players looking to counter this by chasing current account balances of medium-sized businesses.
    For private sector lenders, such as HDFC Bank, tie-ups with exchanges and other sources have helped mobilise a strong base of low-cost deposits. According to CARE Ratings data, the share of CASA in the deposit base of private banks was estimated at over 43% at the end of the June quarter, compared with 41% for the state-run players. The public sector players have, however, lost nearly 4.5% share of CASA business, which has been taken over by private lenders.
    Going by the current trends, banks will be chasing fixed deposits in the fourth quarter as they raise resources to fund the lending requirements. Public sector players such as SBI and Bank of Baroda have opted for an increase in FD rates and others are expected to follow suit. Typically, deposit rates peak in the fourth quarter.





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