Bankers want RBI to allow interest on current accounts

Currently, banks don't give interest on current accounts and, believe doing so will generate more cash flow into the system

Banks will ask the Reserve Bank of India to allow them to pay interest on current account deposits at tomorrow’s meeting, in the run up to the central bank’s monetary policy review.

Currently, banks don’t give interest on current accounts. Doing so, bankers believe, will encourage cash to flow into the system which otherwise stays with the establishments. Current accounts are now 9.85 per cent of total deposits with banks.

RBI will announce its third quarter review of the monetary policy on January 29.

Bankers would also give their views on credit growth and the fall in deposit growth. They would press for a cut in their Cash Reserve Ratio (CRR) and the need for a repo rate (at which RBI lends to banks) cut. Wholesale price index inflation showed a further easing today, encouraging those who want RBI to start cutting rates.

RBI had made a 50-basis point cut in April 2012 but then paused as inflation stayed high; it also wanted the government to contain the fiscal deficit. CRR has been cut by 50 bps this year. Pratip Chaudhuri, chairman, State Bank of India, had demanded further cuts a few days earlier.

Even if RBI decides to cut the repo rate, banks will have to cut interest rates on deposits, to bring down costs and protect margins. This might not be easy, as deposit growth remained sluggish. It has been just above 11 per cent, whereas RBI had projected a 15 per cent growth this year.