In a bid to meet year-end targets, banks have once again begun offering higher interest rates on bulk deposits than what they offer on retail deposits.
Traditionally, banks had been offering higher rate of interest on bulk deposits — where the sum deposited exceeds Rs 1 crore — over retail deposits on grounds that fixed deposits 
are more cost effective.
However, the surplus liquidity, in excess of Rs 1 lakh crore on a daily basis for the whole of last year, prompted banks to discourage inflow of money. As a result, banks began offering lower interest rate on bulk deposits over retail deposits. In some slabs, retail depositors were paid almost 150 basis point more over bulk deposits.
Now, banks have begun paying 75-100 basis points more for wholesale deposits compared to top retail deposits. For instance, banks have begun paying around 5.50-5.75% for 3-6 months against 5% that banks are offering to retail depositors. About a month ago, banks were paying around 3.5% to bulk depositors for 3-6 months.
Bankers point out that they are paying higher rate as liquidity has tightened with the recent hike in the cash reserve ratio, coupled with improved demand for credit in the last quarter. Also, short-term rates have inched up as most banks are looking at replenishing deposits that have matured in February and March to show better numbers for fiscal 2010. Treasury heads point out that as a result, short-term deposits have risen sharply. On multi-crore deposits for three months, banks are paying 4.5% against 2.5-3% offered in the past.
Although websites of most banks do not show revised rate of interest for bulk deposits, treasury heads of several banks told that higher rate for wholesale funds has been the practice since February itself. Treasury heads say revised rates are not published since the last few weeks because of late, most of these rates are negotiated between the depositor and the bank.
Last week, a large PSU bank paid 7.25% for one-year deposits of Rs 250 crore against 6.5% that it pays to retail depositors. These rates are still cheaper against 8.5-9.5% that banks had paid a year ago.
