Mumbai, Nov 23: Banking entities especially the Public Sector Banks (PSBs), which made hefty profits in the declining interest rate regime, are likely to witness a positive impact on their net interest income if rates begin to rise, according to a Reserve Bank of India report. The banking sector as a whole was expected to have a positive impact of 4.9 per cent on net interest income if the interest rates grow by two per cent, RBI in its "Report of Trend and Progress of Banking in India 2002-03".
Among the bank groups, the gains due to rise in interest rates (of two per cent) would be largest for Public Sector Banks, the RBI said.
However, fall in rates of same proportion would bring maximum benefit to private sector banks, old and new, net interest income, the report said.
The foreign banks would see least impact on their net interest income of either fall or rise interest rates, RBI said.
The net interest income takes into account the interest earned and payment (interest) made on liabilities and risks arising from changes in rates, it said.
RBI said the interest rate risk positions were dynamic. There could be appreciation or depreciation in the value of banks securities portfolio due to shifts in rates.
Banking entities follow a conservative accounting practice in respect of unrealised capital gains on investment portfolio and therefore, have latent reserves which act as a cushion in the event of interest rate shock, it added. Bureau Report