Reserve Bank of India (RBI) has freed interest rates on savings deposits. As per a rough estimate, about Rs 13 lakh crore of funds are parked in savings bank. The interest on these accounts had been fixed at 4% even as inflation was two-and-a-half times that level. Now savings rate deregulation gives people an opportunity to shift to banks that come up with better deals.
Although savings deposits can be withdrawn without notice and interest rates are calculated on daily basis, a part of these deposits are perpetual, partly because amounts withdrawn are replenished by monthly earnings and partly because banks mandate a minimum balance ranging between Rs 5,000 to Rs 10,000 in savings accounts.
Banks that are short of retail deposits, like Yes Bank and IDBI Bank, are in a better position to offer higher rates as their overall cost will not rise to that extent. Larger banks, such as SBI and HDFC Bank, may resist initially, preventing their overall cost of funds from rising. But if their customers respond to higher rates offered by rivals, they may be forced to follow suit. Given that the deregulation has come at a time when the interest rate cycle is close to its peak and banks are paying 8.5% for overnight money, it is likely that return on savings deposit will rise. But if there is a slowdown in the economy and demand for credit slips, banks may even lower deposit rates from current levels.
An increase in Saving Bank account rates will put pressure on bank margins. Even if rates go up by only one percentage point, the cost of funds will go up by 0.25% for a bank that has 25% of its resources coming from savings deposits.
No comments:
Post a Comment