The Reserve Bank of India has recently ordered the banks to deposit Rs 3,24,000 crore as CRR that was mobilised by them post demonetisation, forcing the banks to buckle up for losses if the central bank continues imposing 100 per cent incremental cash reserve ratio (CRR) on such deposits for a long period.
“By making banks deposit Rs 3,24,000 crore with the RBI, the total cost for banks on these deposits would be Rs 18,110 crore on an annual basis as this has to be paid to the customers. If these terms on CRR are diluted in course of time, the cost would come down commensurately,” said a report by Care Ratings.
RBI initiated this move to curb black money and circulation of fake currency. The motive behind the order is to absorb over Rs 5 trillion excess liquidity generated by the banks due to the government’s demonetisation scheme.
On Saturday, the RBI said the banks need to transfer 100 per cent of their cash under its cash reserve ratio (CRR) from deposits generated between September 16 and November 11.
Although the RBI said these measures will be temporary and will be reviewed on or before December 9, bankers and analysts are not sure whether the widely expected cut in interest rates by the central bank will still materialise on December 7.
In the long run, if RBI continues to maintain the CRR at 100 per cent it would be a loss making proposition for banks, as CRR is the portion of deposit to be compulsorily deposited with the central bank and it doesn’t earn an interest. The RBI uses CRR as a money supply tightening tool.
The Reserve Bank of India has recently ordered the banks to deposit Rs 3,24,000 crore as CRR that was mobilised by them post demonetisation, forcing the banks to buckle up for losses if the central bank continues imposing 100 per cent incremental cash reserve ratio (CRR) on such deposits for a long period.
“By making banks deposit Rs 3,24,000 crore with the RBI, the total cost for banks on these deposits would be Rs 18,110 crore on an annual basis as this has to be paid to the customers. If these terms on CRR are diluted in course of time, the cost would come down commensurately,” said a report by Care Ratings.
RBI initiated this move to curb black money and circulation of fake currency. The motive behind the order is to absorb over Rs 5 trillion excess liquidity generated by the banks due to the government’s demonetisation scheme.
On Saturday, the RBI said the banks need to transfer 100 per cent of their cash under its cash reserve ratio (CRR) from deposits generated between September 16 and November 11.
Although the RBI said these measures will be temporary and will be reviewed on or before December 9, bankers and analysts are not sure whether the widely expected cut in interest rates by the central bank will still materialise on December 7.
In the long run, if RBI continues to maintain the CRR at 100 per cent it would be a loss making proposition for banks, as CRR is the portion of deposit to be compulsorily deposited with the central bank and it doesn’t earn an interest. The RBI uses CRR as a money supply tightening tool.
