India’s largest private-sector lenders are cutting their practice of using temporary deposits to pay for numbers at the end of the reporting quarter.
HDFC Bank Ltd. has sent multiple emails to employees, the latest in late March, noting that this will be unquestionable. Mint A copy of the March email has been seen, which points to the practice of creating deposits by using the bank’s own loan facilities.
It said: “During the bank’s due diligence inspection, the temporary creation of CASA/TD (current account and savings account/time deposit) has been determined by using CCCOD (Cash Credit, Overdraft) without observable business logic/demand.”
According to the HDFC Bank’s website, Cash Credit (CC) is a short-term loan that provides working capital needs to companies, businesses and financial institutions. On the other hand, an overdraft (OD) facility refers to the credit funds provided by banks to individuals and companies.
The email said HDFC Bank discourages such activities and supervisors should instruct employees not to conduct such transactions. The email further warned that “necessary employee actions” were identified for violations.
Two people aware of the matter said the bank took action after noticing such transactions. One said the bank had taken disciplinary action, while another said lenders were also starting to sensitize employees.
Mint Talk to industry experts to piece together the practice.
Commercial clients are generally entitled to certain working capital loans through CCOD. Bank relations managers will require certain corporate clients to use some of their CCOD restrictions on the last day of the quarter. Once they agree to use the credit line, the bank transfers the amount of these customers’ current account to the current account of these accounts, which reflects the deposit. Therefore, quarterly figures will show higher deposits.
These temporary deposits will be reversed within the next day or two days. Although customers will have to pay a small amount of interest for the use of CCOD restrictions, the branch will try to eliminate the impact.
Please read also: Soon, SBI customers may be able to print their own debit cards
Senior bankers, consultants and experts say this is not uncommon in the industry. “These clients depend on their relationship with the bank and cannot say no when asked to seek some favor,” said senior adviser who works with top banks.
A spokesman for HDFC Bank said that as a large organization, it operates across the country, often issuing some guidelines and process-related communications. “These also include communication reaffirming, always maintaining healthy practices,” the spokesperson said.
The spokesman added: “The bank remains committed to maintaining the highest ethical and professional integrity in its operations.”
Please read also: Can Bajaj Finserv still dominate credit games?
Last year, the entire banking industry in India suffered a deposit tightening, but HDFC banks have a bigger challenge. As the bank faces an increase in credit lines of credit by bringing its former parent and mortgage lender HDFC Ltd to July 2023, it has to lower credits by adding more deposits.
“It has long been a common practice of window decoration in the banking industry during the quarter and year-end. Clients often have a relationship consideration, leading to temporary spikes, followed by a sharp decline in the end of the period after a sharp decline,” said Prakash Agarwal, partner at debt market advisory firm Gefion Capital Advisors.
Agarwal said the practice has declined in recent years, and experienced analysts are now increasingly focusing on average balances rather than on quarterly or year-end figures.
Banks are becoming increasingly difficult for current accounts or accounts that businesses use and earn non-interest. Over the past few years, the government (the main source of current account deposits) has changed its way in which various planned funds are released, moving to a model that sends funds only when needed.
HDFC Bank’s current account deposits rose 1.3% year-on-year in March ₹3.1 trillion. By comparison, rival lender ICICI Bank rose 20.3% in current account deposits ₹2.3 trillion.
