High-cost corporate deposits in banks cross 25 per cent level. To keep pace with the unprecedented growth in assets in the last two years, commercial banks are wooing corporations for deposits in a big way, even though it threatens to raise their cost of deposits.

The share of high-cost corporate deposits in many banks had crossed the 25 per cent mark, banking sources said.

In the case of ICICI Bank, the country's second largest bank, corporates account for half its deposit base of over Rs 1,33,000 crore on December 31, 2005. The next biggest private sector bank, HDFC Bank, has over 30 per cent of its total deposit base of over Rs 36,000 crore (till the end of March) coming from corporates.

The public sector banks, which normally source 5-10 per cent of their deposits from corporations, have raised their exposure to India Inc. However, private sector banks are more aggressive when it comes to taking corporate deposits. The tight liquidity conditions witnessed in January-March affected private sector banks more than their public sector counterparts.

The rising share of corporate deposits in total deposits of banks has the Reserve Bank of India (RBI) worried. It has warned banks that bulk deposits raised at relatively higher rates cannot sustain a higher credit demand for long.

Bank credit has grown by over 30 per cent over the last two years, which the central bank describes as an unprecedented cyclical expansion.

High-cost term deposits of banks increased by 16.1 per cent in 2005-06 to Rs 17,40,419 crore, against 14.9 per cent a year earlier. The increase was mainly on account of short-term wholesale deposits up to one year maturity at rates bid up to a range of 8-8.5 per cent.

( www.business-standard.com)