Banks want CRR interest rate decision repealed
New Delhi: Public sector banks are demanding a reversal of the decision of RBI not paying interest on the cash reserve ratio (CRR) balances maintained by them with the latter. Banks are mounting pressure on the Government to take a re-look at the decision as it would mean a hit of nearly Rs1,500 crore in a full year. This amount could go up if bank deposits increase. The recent enactment of the Reserve Bank of India (Amendment) Act 2006 has resulted in the RBI being exempt from paying interest on any portion of the CRR balances. This exemption has come into effect from the fortnight beginning June 24, 2006.

Banks have to place five per cent of their demand and time deposits with the RBI, which 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 Rs1,200 crore as interest income for the remaining nine months of this year.
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