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April 20, 2001
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Money > Business Headlines > Report April 20, 2001 |
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Banks to bag Rs 8 billion interest income bonanzaBS Banking Bureau The 200 basis points increase in interest payable on cash balances maintained by scheduled commercial banks' with the Reserve Bank of India to 6 per cent will see Rs 8 billion accrue to the banking system as a whole by way of interest income. Consequently, the weighted cost of deposits of these banks will also marginally come down by 3 to 5 basis points. "The interest income of the banks will go up due to the increase in interest payable on cash balances maintained with the RBI," said a senior official of a public sector bank. Currently, for every Rs 100 deposit taken, 8 per cent of this is pre-empted by the RBI. Out of the Rs 8, Rs 3 does not earn any interest while the balance Rs 5 earns 4 per cent interest. With the credit policy announcement, the banks now stand to earn 6 per cent interest. The apex bank has said that while the its medium-term objective will be to reduce the cash reserve ratio to the statutory minimum, as an intermediate measure, interest rate on eligible balances will be aligned with the bank rate in two stages. In the first stage, with effect from the fortnight beginning April 21, 2001, the interest paid on eligible balances will be increased to 6 per cent and at a subsequent stage, to be announced later, interest paid will be at bank rate. The move to exempt inter-bank term liabilities of 15 days and above from the prescription of minimum cash reserve requirement of 3 per cent will straighten out the distorted cost structure for the borrowers in the market. "Right now for every Rs 1 billion borrowed from the market by a bank, it has to keep Rs 30 million with the RBI but has to pay the lender interest on the principal amount leading to the cost of the borrowing being higher than the contracted amount," a banker explained. Powered by YOU MAY ALSO WANT TO READ:
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