MUMBAI: RBI is all set to deregulate the interest rates on savings bank accounts in the next financial year. This will fetch more interests to the funds that are available on the savings accounts. The current interest was upgraded to 4% last financial year and this has been maintaining the slow pace from 1978.
The new system comes into effect immediately and would replace the existing one, which has been in place since 1978.
Within hours of the policy, private sector player, Yes Bank, increased the return on its SB accounts to 6%. Other banks with a relatively lower share of retail deposits such as IDBI Bank and Kotak Bank may follow suit in a bid to poach customers from rivals. Although the small banks lack the distribution network, they are likely to play the upstart by targeting salary accounts with the larger banks.
Although the major banks are still in discussion with RBI on the new deregulation policy as they will have to have a greater liquidity of funds to provide the high interest rates. What RBI feels is that with the amount more in savings account there wont be much spending and can prevent further inflation in the country.
But on the counter parts, banks believe that if a person needs greater interests then they can always open a sweep account, which should earn them higher interest rates than savings account. "We have not set any parameters for the savings deregulation as we wanted banks to devise their own schemes and compete in the best interest of the customers and the country," said D Subbarao, governor, RBI.
"We are not in a hurry to raise savings deposit rates. We would rather see how it plays out...even today depositors have the advantage of getting higher returns through sweep accounts. Unless there are competing pressures we are not looking at raising rates now." Pratip Chaudhuri, chairman, State Bank of India, said.
In reality, as pointed out by the large banks, depositors already have several options for getting a better returns on their savings. For instance, any depositor with a significant balance in a new generation bank can open a 'sweep account' which is nothing but a unitized fixed deposit account where the deposit can be broken in parts and the amount credited to the customers account whenever he needs them.
There are also liquid funds where funds can be deployed and withdrawn at will. However, there continues to be a large section of customers who are either not sophisticated enough or not active or simply too conservative to try a higher yielding option. These borrowers will be the main gainers.
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