Something else that may be negative for the Banknifty on Monday.
RBI asks banks to set aside deposits garnered between September 16 & November 11
By Joel Rebello & Saikat Das, ET Bureau | Updated: Nov 26, 2016, 07.37 PM IST
Banks have to park these deposits with the RBI from the fortnight beginning November 26 as incremental cash reserve ratio.
MUMBAI: Reserve Bank of India (RBI) has asked banks to keep all incremental deposits garnered between September 16 and November 11 with the central bank as it seeks to absorb the avalanche of liquidity in the banking sector since the government asked people to deposit all their high value Rs 500 and Rs 1000 notes in their bank accounts.
Banks have to park these deposits with the RBI from the fortnight beginning November 26 as incremental cash reserve ratio (CRR).
CRR is the amount of deposits banks have to compulsorily park with RBI without earning any interest. RBI however clarified that this is just a temporary measure and the CRR on total banking deposits will remain unchanged at 4% of total bank deposits.
The government announced demonetisation of the high value currency on November 8 and latest numbers on the RBI website shows until November 11 commercial banks had Rs 101 trillion of total deposits.
Based on the latest numbers available about Rs 3.24 trillion of deposits will have to be parked with the central bank starting from Saturday. In other words banks will pay a savings account rate of at least 4% on these deposits and get nothing in return impacting income.
"Banks will get negative returns for deposits mobilised during the stipulated fortnight,” said NS Venkatesh, executive director, Lakshmi Vilas Bank.
Karthik Srinivasan, senior vice president at ICRA said banks will collectively lose close to Rs 700 crore in the next 15 days. "While lenders can earn 5.75% from reverse repo, CRR yields no interest income," he said. Banks can also park excess deposits with RBI through the reverse repo window in exchange for government securities.
Expectations are that overnight bank borrowing rates which had fallen below the 6.25% repo rate over the last one week will inch up.
“This means that the extraordinary drop in rates will correct to some extent. Even three months money was available at less than 6% which will now correct. These are immediate measures but we should expect more in the coming monetary policy,” said Ashish Parthasarthy, treasurer at HDFC Bank. RBI will announce its rate decision on December 7.
In a press release the RBI said that the new measures have been announced to deal with excess liquidity. “The magnitude of surplus liquidity available with the banking system is expected to increase further in the fortnights ahead. In view of this, it has been decided to absorb a part of this surplus liquidity by applying an incremental cash reserve ratio (CRR) as a purely temporary measure,” RBI said.
The central bank hopes to absorb a part of the surplus liquidity arising from the return of high denominated notes through this measures while leaving enough in the system for banks to meet the credit needs of the productive sectors of the economy.
This temporary measure will be reviewed at the end of the current fortnight which is December 9 earlier, RBI said.
http://economictimes.indiatimes.com...etween-sep-16-nov-11/articleshow/55637533.cms
By Joel Rebello & Saikat Das, ET Bureau | Updated: Nov 26, 2016, 07.37 PM IST
Banks have to park these deposits with the RBI from the fortnight beginning November 26 as incremental cash reserve ratio.
MUMBAI: Reserve Bank of India (RBI) has asked banks to keep all incremental deposits garnered between September 16 and November 11 with the central bank as it seeks to absorb the avalanche of liquidity in the banking sector since the government asked people to deposit all their high value Rs 500 and Rs 1000 notes in their bank accounts.
Banks have to park these deposits with the RBI from the fortnight beginning November 26 as incremental cash reserve ratio (CRR).
CRR is the amount of deposits banks have to compulsorily park with RBI without earning any interest. RBI however clarified that this is just a temporary measure and the CRR on total banking deposits will remain unchanged at 4% of total bank deposits.
The government announced demonetisation of the high value currency on November 8 and latest numbers on the RBI website shows until November 11 commercial banks had Rs 101 trillion of total deposits.
Based on the latest numbers available about Rs 3.24 trillion of deposits will have to be parked with the central bank starting from Saturday. In other words banks will pay a savings account rate of at least 4% on these deposits and get nothing in return impacting income.
"Banks will get negative returns for deposits mobilised during the stipulated fortnight,” said NS Venkatesh, executive director, Lakshmi Vilas Bank.
Karthik Srinivasan, senior vice president at ICRA said banks will collectively lose close to Rs 700 crore in the next 15 days. "While lenders can earn 5.75% from reverse repo, CRR yields no interest income," he said. Banks can also park excess deposits with RBI through the reverse repo window in exchange for government securities.
Expectations are that overnight bank borrowing rates which had fallen below the 6.25% repo rate over the last one week will inch up.
“This means that the extraordinary drop in rates will correct to some extent. Even three months money was available at less than 6% which will now correct. These are immediate measures but we should expect more in the coming monetary policy,” said Ashish Parthasarthy, treasurer at HDFC Bank. RBI will announce its rate decision on December 7.
In a press release the RBI said that the new measures have been announced to deal with excess liquidity. “The magnitude of surplus liquidity available with the banking system is expected to increase further in the fortnights ahead. In view of this, it has been decided to absorb a part of this surplus liquidity by applying an incremental cash reserve ratio (CRR) as a purely temporary measure,” RBI said.
The central bank hopes to absorb a part of the surplus liquidity arising from the return of high denominated notes through this measures while leaving enough in the system for banks to meet the credit needs of the productive sectors of the economy.
This temporary measure will be reviewed at the end of the current fortnight which is December 9 earlier, RBI said.
http://economictimes.indiatimes.com...etween-sep-16-nov-11/articleshow/55637533.cms
