RBI to look into deregulation of interest rate on savings

Sep 08, 2010 |

AFP/PTI

mumbai

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The Reserve Bank on Wednesday said it would soon set up a working group to examine the possibility of deregulation of interest rates on savings account.

"Deregulation of interest rate is on our radar. A working group will soon be set up to examine the possibility of deregulating of interest rates," RBI deputy governor Usha Thorat said addressing a banking conference organised by FICCI and IBA here.

"We have to examine whether the deregulation can help bring more people into the formal banking system," Thorat said.

At 3.5 per cent per annum, interest on savings accounts is the only regulated rate in the banking system currently and a highly contentious one given its impact on the common man.

For achieving the goal of financial inclusion, there is a need for a higher number of tie-ups between banks and the non-bank finance companies (NBFCs) to have better delivery systems to ensure better last mile connectivity, Thorat said.

Thorat also said that the apex bank is in the process of "tweaking" regulations on securitisation to ensure the growth of the securitised market in an orderly manner.

Banks should also ensure that there is no excessive borrowing, as such borrowings can lead to the formation of bubbles, which can deter stability, she said.

Looking at the high growth in credit in recent years, Thorat advised banks to do more "forward looking provisions" to cover their non-performing assets (NPAs) whose increase is "inevitable" in the future.

In her address, Thorat laid a greater stress on rating agencies and asked them to provide "holistic approach" while rating as it has a direct link to the bank's assets.

She also highlighted the need for development finance institutions to launch more risk mitigant like the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) which offers collateral-free loans for the benefit of small farmers, landless agricultural labourers, those engaged in allied activities related to agriculture and ones affected by natural calamities.

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