RBI terminates interest payment; jolts banks

Mumbai, Apr 14 (UNI) In bid to carry forward the stringent monetary policy, the Reserve Bank of India (RBI) will now stop paying interests to banks on Cash Reserve Ratio (CRR), the amount of reserves between the statutory minimum CRR and the CRR prescribed by the RBI.

The move is expected to result in a loss of around 400 crore to banks while taking into account the current CRR balance of about 1,50,000 crore.

The move of the Central bank may come as a further jolt to the banking sector, which have already tasted a hike in CRR rates recently.

According to an RBI release, the direction has come on behalf of the RBI (Amendment) Bill, 2006 and ''has removed the ceiling and floor on the cash reserve ratio (CRR) to be prescribed by the RBI for scheduled banks and also the removal of provisions for interest payment on eligible CRR balances''.

Pursuant to the amendment, the erstwhile statutory minimum CRR maintenance requirement of 3 per cent will no longer exist and no interest will be payable on CRR balances of banks with effect from the fortnight beginning March 31, the release said..

However, banks are required to maintain a minimum of 70 per cent of required amount of average daily CRR for a fortnight, on a daily basis during the fortnight, as they presently do.

RBI would continue with the status quo on the extent CRR exemptions which will be operative till further change.

While this will have minimal impact on bank results in the current quarter, from the next quarter onwards, banks will see a shrinking of their interest income on this score.

UNI