The Finance Ministry has reportedly asked the central bank to restrict banks from participating in bids called by cash surplus state-run firms for placing their bulk deposits.
According to an ET report, the FinMin feels that aggressive bidding by banks to mop up their deposits pushes up cost of funds and eventually makes credit expensive. The ministry said such biddings are done informally as banks eye the cash balances of around Rs 3 lakh crore that PSUs hold.
In order to check this, RBI had earlier raised the limit for differential rates of interest for deposits of the same maturity to Rs 1 crore from Rs 15 lakh from April 1 this year, said ET. However, it added that the current policy requires banks to maintain "minimal" variation in interest rates offered on such term deposits and regular retail deposits, but the term minimal is not defined.
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