The current hike in the limits of bulk deposits has been triggered by sluggish growth in bank deposits rapid growth in bank loans, recently. Year-on-year, during 2022-23 and 2023-24, aggregate deposits of scheduled commercial banks (SCBs) grew by 9.6 per cent and 12.9 per cent respectively, whereas bank credit grew by 15 per cent and 16.3 per cent. The new norms also break the definitional status quo maintained for over five years.

Following its announcement in the June 7, 2024, ‘Developmental and Regulatory Policies’, RBI notified the new definition of bulk deposits (BDs) as:

A) Single rupee term deposits (TDs) of ‘₹3 crore and above’ for SCBs (excluding regional rural banks — RRBs) and small finance banks; and

B) Single rupee TDs of ‘₹1 crore and above’ for RRBs and local area banks.

BDs were first defined on March 3, 2016, according to which ‘A’ stood at ‘₹1 crore and above’ and ‘B’ at ‘₹15 lakh and above’. From February 22, 2019, ‘A’ stood at ‘₹2 crore and above’ and ‘B’ at ‘₹15 lakh and above’. Interest rates offered on BDs are ‘same as or higher than’ those on retail deposits in the comparable maturity categories. Post-announcement, many banks have revised their interest rates on BDs.

In general, BDs source from high net-worth individuals and non-individual entities like government, public and private sector corporates, rich trusts, non-banks and societies. The revised limit will increase banks’ retail TDs, at least statistically, and allow banks to release human and technological resources to garner BDs.

Bulk deposits data

Banks don’t publish their BD data; instead, they publish ‘deposits with 20 largest depositors’ in the ‘Notes to the Account’ of their balance sheets.

However, RBI’s Basic Statistical Returns-2 provides size-wise distribution of TDs according to ownership by ‘number of accounts’ and ‘amount outstanding’ for the banking system. From this database we collated TDs which are ‘₹1 crore and above’ (let’s call it ‘target category’) in order to obtain a fair idea about the number of accounts and amount of BDs. The highlights of our data analysis covering 2019 to 2024 (March-end) are discussed below.

At March-end 2024, the number of accounts and amount stood at 8,10,000 and ₹50,55,870 crore, respectively, in the ‘target category’ with their respective compound annual growth rates (CAGRs) during 2019-24 at 11.8 per cent and 14.5 per cent, exceeding the corresponding CAGRs posted by the total TD portfolio.

Both by number of accounts and amount, ‘non-individuals’ commanded a lion’s share in the ‘target category’.

In terms of amount, CAGR for ‘non-individuals’ in the ‘target category’ at 15 per cent crossed that for ‘individuals’ at 8.6 per cent. However, by number of accounts, CAGR for the former was lower (11.1 per cent) than the latter (13.9 per cent).

During 2019 to 2024, the shares of the ‘target group’ by the number of accounts remained as low as 0.19 per cent to 0.33 per cent of the total number of TD accounts; however, they commanded as high as 37 per cent to 43.7 per cent of the total TDs’ amount (see Table). This indicated high inequality in the distribution of TDs.

Exercise discipline

An overwhelming part of BDs is uninsured. For example, the current deposit insurance limit at ₹5 lakh covers as little as 1.67 per cent of BDs worth ₹3 crore. Therefore, bulk depositors not only search for fundamentally strong banks but also monitor their activities regularly and closely, unlike the retail depositors. If bulk depositors observe weaknesses in their banks, they will likely migrate their deposits to other perceivably stronger banks.

Thus, bulk depositors are in a position to exercise discipline on their banks. In order to retain bulk depositors, banks even treat them with prestige.

Risks of bulk depositors

BDs, generally, are considered as potentially volatile. Bulk depositors receiving higher interest rates, but not maintaining any other significant or stable relationship with a bank (say, as borrowers), can exit anytime, if deposit interest rates decline, or if they are offered further higher rates or better facilities by other banks.

Walkouts, even by a few big depositors, despite the bank remaining safe and sound, may be misinterpreted by general depositors, if they come to know about it, as something is wrong with the bank, which may also get exacerbated through rumours.

After the Lehman collapse in 2008 Q3, in India, a major corporate transferred ₹1,000 crore deposits from a large private bank to a large public sector bank. Following the corporate’s disclosure and newspaper reports of the event, long queues were seen outside the private bank’s ATMs in major cities, even though the bank was safe and sound. Besides, BDs are vulnerable to window-dressing by banks, in many ways, towards the accounting year-end.

For instance, it’s easier to ask a few large customers to not withdraw their deposits towards the accounting year-end than to ask millions of retail depositors to do so.

One way to mitigate the risks is to focus on those bulk depositors who maintain durable relationship with the bank and in various capacities. Further, banks should, among other things, actively monitor BD accounts and their premature closing. Supervisory authorities during their inspections of banks should also take note of BDs and activities therein.

In order to impart stability to their deposit portfolios, banks should contract more of non-callable BDs with long maturity periods. Banks should also disclose comprehensive data on BDs in their balance sheets. The RBI’s BSR-2 data on size-wise distribution of TDs should give data for ‘₹3 crore and above’, following the revision.

Das is a former senior economist, SBI. Views expressed are personal

In order to impart stability to their deposit portfolios banks should contract more of non-callable bulk deposits with long maturity periods