PSU Banks in the red

PSU Banks are the big losers on the BSE since morning. Bank of Baroda leads the pack with a loss of 2.44%, Federal Bank is next, down 2.33%, Bank of India, Oriental Bank, SBI, PNB, Corporation Bank, Canara Bank; all are in the red. Even Private sector banks like ICICI Bank, Yes Bank, Axis, all are down.

In a surprise move, the RBI announced “temporary measure to drain excess liquidity.” With banks flush with deposits after the demonetization move, the RBI announced that surplus will be absorbed by applying an incremental Cash Reserve Ratio (CRR) – this means that though CRR remains unchanged at current rate of 4%, they will now need to maintain an incremental CRR of 100% from 26th November. This will be reviewed on 9th December or earlier.

CRR is the amount of deposits banks have to compulsorily park with the RBI without earning any interest.

This move is being viewed as detrimental for PSU Banks as it will now suck out over Rs.3 lakh crore from the banks, leaving with no interest gains for banks. These banks had expected an improvement in margins and CASA ratio.