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Banks gain as RBI plans to pay interest on cash reserves

Banks gain as RBI plans to pay interest on cash reserves
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First Published: Mon, Feb 26 2007. 11 18 AM IST
Updated: Mon, Feb 26 2007. 11 18 AM IST
MUMBAI: Shares of State Bank of India, Punjab National Bank and Bank of Baroda gained after India’s central bank said it will resume paying interest on their cash reserves kept with it.
The Reserve Bank of India, which stopped paying the interest in June, will pay banks 3.5% interest on their cash reserves from 24 June to 8 December, the central bank said in a faxed statement 23 February. The RBI will pay 2% for the period from 9 December to 16 February and 1% on cash reserves maintained from 17 February.
“Payment of interest should improve profitability of banks by two to there percentage points in the current fiscal to 31 March,” said Vishal Goyal, an analyst with Edelweiss Capital Ltd in Mumbai.
Banks will have to keep 6% of their deposits with the central bank from 3 March, following the RBI’s 13 February decision to raise the cash reserve ratio from 5.5% in two stages starting 17 February.
Shares of State Bank of India traded Rs15.6, or 1.5% higher, at Rs1,074. Punjab National Bank rose 1.4% to Rs441 at 10:00 a.m. on the Bombay Stock Exchange.
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First Published: Mon, Feb 26 2007. 11 18 AM IST
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