Bank chiefs may ask RBI to pay interest on CRR

Chiefs of large commercial banks have decided to make a case to the Reserve Bank of India (RBI) for interest payment on the cash reserve ratio (CRR). Unlike in the past, the central bank does not pay any interest on the CRR, the slice of deposits that banks have to park with RBI. Bank chiefs met on Friday under the aegis of the Indian Banks’ Association, a body which represents the interests of the banking industry. They have decided to take up the issue of non-payment of interest with the central bank. The CRR is now 7.5%. For State Bank of India, the country’s largest bank in terms of assets and market share, with deposits (net time and demand liability) of Rs 5 lakh crore, a 7.5% CRR works out to Rs 37,500 crore which will not attract any interest. If the bank were to deploy this money at 4% on an annualised basis, it would earn Rs 1,500 crore. Bankers fear their margins will be hit as another rate hike may not be far off if the fund inflows continue. Already, in the first half of this fiscal, several banks have seen a squeeze in their net interest margins. Bankers feel there is nothing that prohibits the central bank from paying interest on CRR. Current pricing of deposits doesn’t factor in future rate hike. Banks want to rein in recovery agents to avoid RBI action.

German bank to open representative office in Mumbai

To tap the transport and energy financing market, German bank NORD/LB plans to set up an office in India shortly. The representative office, to come up in Mumbai, is expected to commence operations in January 2008. “We have got the licence from the Reserve Bank of India and are in the process of completing the legal formalities. The economic strength being witnessed in India is attractive and we have decided to open an office in Mumbai,” said Dr Hannes Rehm, Chairman of the Board of Management of the bank. The bank would be getting into ship financing, air-carrier financing and exports. The bank would also be getting into energy financing, he added. It, however, does not have plans to enter retail banking currently.

PSU banks make profits, but not from lending

Corporate India may be reporting good profit numbers. But lending money didn’t make much for public sector banks as a group in the second quarter ended September 30. Their net interest income (or interest earned less interest expense) did not grow at all in this quarter. Yet profits grew 23 per cent for a set of 21 public sector banks for which the figures are available. It was liquidation of some of their equity investments, cashing in on the stock market boom, some recoveries of old bad debts, some treasury gains from the bond and forex markets and some other non-interest income that rescued public sector banks this quarter. Other income grew 45 per cent for these banks contributing almost the entire profits for this quarter. Comparatively, private banks did better. The profits of about 16 private banks grew 34 per cent riding on a robust 38 per cent growth in net interest income and a healthy 33 per cent growth in other income. All banks are hopeful of improving their net margins in the third quarter. This is the busy season for credit. So, one can expect a pick-up there. As for deposit costs, there are indications that a cut may be around the corner. Banks can then hope to make more money by just lending it.