[1]You may soon be earning more on your savings bank account. India’s banking regulator, Reserve Bank of India, is in favour of deregulating all interest rates, including savings bank deposit rates.
Currently, the interest rate on savings account is 3.5 per cent. If it is deregulated, banks may be able to raise it based on their cost structure and funding needs. This would raise the cost structure for all banks, but those where savings accounts form a higher fraction of the total deposit base would see a greater impact.
“We have initiated a debate in the last policy..., the deduction is very clear, clear in favour of deregulating all interest rates, including savings bank,” RBI deputy governor, Mr K.C. Chakrabarty, said on Thursday. “But the decision will be taken, when to do that, after having adequate debate on the issue,” he added.
Currently, interest rate on savings bank is the only rate that the RBI regulates. Bankers say that deregulation of savings rate may take a long time to implement. However, this would raise competition amongst banks and push rates higher.
Analysts say that given the competition within the banking sector, savings rates could easily move up by 0.5-1 percentage point. “The upper limit to savings account interest rates is the repo rate — the rate at which banks can borrow money from the RBI,” says an analyst tracking the sector.
The repo rate currently stands at 5.5 per cent. However, drastic increases are unlikely because banks will not be able to raise lending rates alongside. Earlier this year, RBI had also asked banks to start calculating interest on savings account on a daily basis instead of weekly.
Interest rates on fixed deposits are not regulated by RBI, and different banks offer differing rates based on their cost of funds. For instance, State Bank of India offers an interest rate of six per cent on fixed deposits. For a private sector bank such as ICICI, this rate ranges from 6.25 to 6.75 per cent. For some of the smaller banks, such as Karnataka Bank, this rate goes up to seven per cent. A similar differentiation could creep up in case of savings rates.
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RBI hints hike in key rates
Mumbai, June 17: The Reserve Bank of India (RBI) on Thursday indicated that it might tweak the monetary policy anytime to contain inflation, although it sent signals to the contrary on Wednesday when it announced a move to release Rs 20,000 crore into the banking system.
“Inflation is a big worry to the central bank... We are constantly monitoring the situation... The (monetary policy) action can be done before the policy or after,” RBI deputy governor, Mr K.C. Chakrabarty, said on the sidelines of a seminar.
The RBI, which started exiting its easy money policy stance since October last, is widely expected to hike key short-term lending (repo) and borrowing rates (reverse repo) by 0.25 per cent at its quarterly policy review on July 27.
However, with headline inflation entering double digits (10.16 per cent in May), the action was expe-cted much before the sch-eduled policy review. —PTI
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[1] http://archive.asianage.com/busi0618jpg-131