Reserve Bank of India plays googly with banks, common man to suffer

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Reserve Bank of India
Reserve Bank of India

New Delhi : Demonetisation - a great move to cure black money funded economy. Now, when nearly 8 lakh crores have been flooded into the banks, the hopes were to enjoy low EMIs and better interest rates on savings. Wait! It is not happening anytime soon; instead get ready to face less interest rate on your savings with the banks.

This comes as a likely result of Reserve Bank of India’s latest move that is nothing less than a googly for banks operating in the nation. RBI has decided to increase the CRR to 100% resulting in a steep downfall in interest rates, and a likely increase in lending rates.

A record amount has been parked by banks with RBI post demonetisation move, with an average of 6.22% rate through the reverse repo window.

After the 100% CRR move for incremental deposits since September 16, banks will now borrow from RBI's repo window and pay the central bank at 6.26%. In the process, banks will lose 4 basis points (6.26% they will pay in the repo window while they'll get 6.22% through the reverse repo window) for a large chunk of their deposits.

To add to this loss, banks also have to pay their depositors at least 4% rate in savings bank accounts. So the total loss is at least 4.04% on these huge incremental deposits "To contain further losses, at a time when demand for loans is low, there is no way banks will cut lending rates in the immediate future," Times of India quoted a top fund manager. 

Well! Well! Well! Didn’t see that coming; hope PM Modi and his government will do something about it to ensure happiness of common man.