Daily interest deposits to dent margins by 12 bps: BoB

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Daily interest deposits to dent margins by 12 bps: BoB

The Reserve Bank of India (RBI) on Friday asked banks to pay interest to savings account holders on a daily basis. RK Bakshi, Executive Director of Bank of Baroda, said the daily interest calculation rule is expected to impacted net interest margins (NIMs) to the tune of 12 basis points (0.12%).

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Savings a/c should receive interest daily: RBI tells banks ALSO READ See latest News about Bank of Baroda See previous management interviews See what other Experts & Brokerages are saying about Bank of Baroda Bank of Baroda BSE | NSE 09/02/12 Are Mutual Funds betting on Bank of Baroda? Other Stocks in this news IDBI Bank |

The Reserve Bank of India (RBI) on Friday asked banks to pay interest to savings account holders on a daily basis.

CNBC-TV18 spoke to banking executives discussing the move and other recent developments regarding the banking sector. RK Bakshi, Executive Director of Bank of Baroda , said the daily interest calculation rule is expected to impacted net interest margins (NIMs) to the tune of 12 basis points (0.12%).

The impact would also depend on each bank's current-account-savings-account (CASA) ratio, said P Sitaram, CFO of IDBI Bank . "The hit on NIMs would be lower the CASA is lower," he said.

Bond yields are likely to move up post Budget, Krishnan said. Bank of Baroda's borrowing plan will depend on the Union Budget's stand on the stimulus packages, Bakshi said.

Here is a verbatim transcript of an exclusive interview with RK Bakshi and P Sitaram on CNBC-TV18. Also watch the accompanying video.

Q: What do you think will be the impact on your margins because of the daily interest calculation rule?

Bakshi: This rule is definitely going to impact the margins. The rate of interest on saving bank is 3.5%. The actual cost comes depending on bank and d on half year to half year somewhere between 2.9 to 3%. This means there will be clearly a hit of 50-60 basis points on the saving portfolio which may translate to around 12 basis points on the overall deposit portfolio.