The Hindu Business Line : Banks want roll-back of CRR interest rate decision

Public sector banks want the decision not to pay interest on cash reserve ratio (CRR) balances maintained by them with the Reserve Bank of India (RBI) reversed at the earliest.

They are now mounting pressure on the Government to take a re-look at the decision as it would mean a hit of nearly Rs 1,500 crore in a full year. This amount could go up if bank deposits increase.

With the recent enactment of the Reserve Bank of India (Amendment) Act 2006, the RBI has been exempted from paying interest on any portion of the CRR balances. This exemption has come into effect from the fortnight beginning June 24, 2006.

Banks are supposed to place five per cent of their demand and time deposits with the RBI, which, in turn, has been paying 3.5 per cent interest to the banks, but only to the extent of two per cent of the CRR balances.

With the amendment to the RBI Act, interest on the two per cent of CRR balances need not be paid.

On a cumulative basis, the banking industry is likely to take a hit of about Rs 1,200 crore as interest income for the remaining nine months of this year.

Consequently, banks are now petitioning the Finance Ministry to reverse the decision and have even raised the matter at the meeting with the Finance Minister, Mr P. Chidambaram, on July 21.

Oriental Bank of Commerce (OBC) Chairman and Managing Director, Mr K. N. Prithviraj, said that OBC would lose about Rs 38 crore this year on account of this decision.

Corporation Bank CMD, Mr B. Sambamurthy, said that the bank would take a hit of about Rs 20 crore. Punjab National Bank would lose about Rs 50 crore on this account.

More Stories on : Public Sector Banks | CRR & Bank Rates

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