Change in bulk deposits’ limit may lead to deposit accretion for banks, say bankers

Bulk deposits are generally used by high net-worth and ultra high net-worth individuals for short durations. Banks provide interest rates of around 5-6 percent on bulk deposits of 7 to 45 days.

The Reserve Bank of India (RBI)'s decision to change the limit of bulk deposits for scheduled commercial banks and small finance banks (SFB) to Rs 3 crore from Rs 2 crore may lead to deposit accretion, analysts and industry experts said.

Bulk deposits are generally used by high networth and ultra high networth individuals for short durations. Banks provide interest rates of around 5-6 percent on bulk deposits of 7 to 45 days.

Earlier, an October notification of the central bank defined bulk deposits for these banks as Rs 2 crore.

A senior private banker highlighted that the impact is less due to the revision of rates, and more because the target audience of the bulk deposits are comfortable with the current picture. “We may see some accretion due to the revision but much is not expected,” the banker said.

Sanjay Agarwal, Managing Director (MD) and Chief Executive Officer (CEO) said that the move will give more room to banks for mobilisation of these deposits. “Upward revision in bulk deposit threshold from Rs 2 crore to Rs 3 crore and above is a welcome and pragmatic step and will provide more room to banks for mobilisation of granular retail deposits,” Agarwal said.

Echoing this, analysts also said that the banks may see some jump in the bulk deposits for the short term.

Also read: RBI changes bulk deposit definition for commercial banks, SFBs to Rs 3 crore

And Ajay Kanwal, MD & CEO, Jana Small Finance Bank said that the revision of the deposit limit may lead to some change in the cost of funds but in favour of the banks. "Without seeing much changes, we expect some fall in the cost of funds,” Kanwal said.

RBI’s decision

The central bank said that the decision to change the limit of bulk deposits was the result of a review of banks' bulk deposits. “On a review of bulk deposit limits for banks, it is proposed to revise the definition of bulk deposits as single-rupee term deposit of Rs 3 crore and above for scheduled commercial banks and SFBs, excluding regional rural banks,” RBI Governor Shaktikanta Das said in his monetary policy committee (MPC) statement on June 7.

Das also defined the bulk deposit limit for the regional rural banks RRBs as single rupee term deposits of Rs 1 crore and above.

For example, data from the website of the banks showed that State Bank of India (SBI) provides an interest rate of 3.5 percent to 6.5 percent on deposits of tenures ranging from 7 days to 10 years. For the same period, ICICI Bank provides an interest rate of 3 percent to 6.9 percent. Bank of Baroda provides an interest of 4.25 percent to 6.5 percent and Axis Bank provides an interest rate of 3 percent to 7 percent for the same period.

Banks deposits

The January-March FY24 quarterly numbers of some banks showed that deposit growth has been outpacing credit growth. HDFC Bank’s total deposits stood at Rs 23.79 lakh crore during the quarter that ended on March 31, 2024, and grew 7.5 percent quarter on quarter (QoQ).

RBL Bank reported a deposit growth of 22 percent, compared to a credit growth of 19 percent, YoY . YES Bank reported YoY deposit growth of 22.5 percent, compared to a credit growth of 14.1 percent.

Also read: Banks’ CD ratio eases for now but may rise in FY25, says CareEdge report

And ratings agency Care Edge in a report in April 2024 said that the credit-deposit (CD) ratio of banks, after touching a decadal high in March 2024, eased by 120 basis points and stands at 79.1 percent for the fortnight that ended on April 5, 2024.

“The CD ratio has been generally hovering around 80 percent since September 2023. It saw a downtick of 120 bps, compared to the previous fortnight, and stood at 79.1 percent for the fortnight that ended on April 5, 2024, driven by robust sequential growth in deposits. The HDFC-HDFC Bank merger mainly drives this growth,” the report said.

CD ratio shows how much of the money that banks have raised as deposits has been lent out. A high CD ratio indicates liquidity and credit risks for banks.

Some media reports in January 2024 said that the Reserve Bank of India (RBI) expressed discomfort with the high CD ratio in the banking industry. Additionally, Sanjay Agarwal, Senior Director, CareEdge, had earlier said to Moneycontrol that the regulator has been asking for a more reasonable CD ratio number. "We've seen that the deposit growth of Indian banks has been slower than their credit growth. This has eventually led to a high CD ratio," Agarwal said.