Banks will ask Reserve Bank of India to allow them to pay interest on current account deposits in the pre-policy meeting tomorrow. Currently banks don’t give any interest on current accounts.
Bankers believe giving interest on current accounts will encourage the cash to flow into banking system which otherwise stays with the establishments. Prsently current account deposits account for 9.85% of the total deposits with the bank.
Bankers are also expected to give their views on credit growth and fall in deposit growth to RBI. Bankers will demand for CRR cut as well as the repo rate cut since wholesale price index (WPI) inflation further eased today giving the much needed comfort to the central bank to once again start cutting the rates.
RBI had cut rates by 50 basis points in April 2012 but pressed a pause button as inflation stayed high and also wanted the government to contain fiscal deficit. The central bank however, went for cut in cash reserve ratio (CRR) by 50 basis points this fiscal till now. Pratip Chaudhuri, chairman, State Bank of India had demanded for the same a few days ago after the budget meeting with finance minister.
Even if RBI decides to cut the repo rate, banks have to cut interest rates on deposit rates to bring down costs and protect margins.
Deposit rate cut may not be easy for banks as deposit growth remained sluggish. According to last available data deposit growth was just above 11 per cent whereas RBI had projected 15 per cent growth in deposit this year.