The government has cautioned public sector banks on use of high cost bulk deposits to finance large projects, at rates lower than the cost of deposits. According to sources some of the public sector banks are doing a very “fine pricing” of big ticket loans, which may not be sufficient to cover the cost of bulk deposits.

Sources indicate the pricing differential may be as high as 40-50 basis points , between the project loan rates and deposit rates thus making banks vulnerable to a possible asset liability mismatch.

In the shorter run this could impact bank interest margins.

While previously too the government has flagged the issue of high cost of bulk deposits with banks, this time around the concern is also on the underpricing of large projects loans.

Sources say government has analysed data for the last 10 quarters, which indicates a rise in the share of bulk deposits of PSBs.

Some of the data points towards the share of bulk deposits having risen to over 40% in some of the banks, the cost of which is not being covered in their project loans.

However, one also needs to be mindful of the RBI raising the bulk deposit threshold from ₹2 to ₹3 crore in June this year.

Sources say the finance ministry raised these concerns in a recent review meeting with PSBs.

Sources also indicate the government may task the PSBs with more granular bi-monthly reviews of their core performance, in addition to the quarterly reviews.

Sources say banks need to recalibrate their deposit mix and start charging the right spread on big ticket loans, which is a tall task. Banks have been struggling to garner deposits with a significant drop in CASA and in the race to do so have raised not just retail term deposit rates but bulk deposit rates too to attract big ticket deposits.

Bankers also say the government’s decision to adopt the “just in time “ releases of government funds has exacerbated the situation.

There has been a large depletion in the free float of treasury money parked with banks for centrally sponsored and central sector schemes in the past two years.

Public sector banks have raised this issue with the government and regulator in the past but to no avail.