New banks may aid your savings

Your savings deposits may now fetch you more interest earnings, following the expected entry of new private banks after the passage of a banking reform bill this week. Consumers are also likely to get new products and services at lower costs as the entry of new players hots up competition in the sector.

"New banks are likely to bring higher efficiency, innovative products and new technology, which will bring down costs for customers," said Monish Shah, senior director at consulting firm Deloitte India. "Competition from new players will put pressure on existing banks to perform better which will further improve service standards for customers."

The Lok Sabha on Tuesday passed the Banking Laws (Amendment) Bill, paving the way for setting up new private banks as it strengthened the regulatory role of the Reserve Bank of India.

The RBI has now been empowered to supersede bank boards to safeguard depositors and shareholders' interests, as the RBI will be able to investigate the books of the associate enterprises of a bank.

Larsen & Toubro, Tatas, Aditya Birla group, Bajaj Finserve, Anil Dhirubhai Ambani Group (ADAG), Religare, Mahindra and Mahindra, Srei and Edelweiss are among those looking to foray into banking services.

Previous trends confirm that new banks will pursue aggressive strategies in attracting customers. When the RBI deregulated interest on saving deposits in October 2011, banks including Yes Bank and Kotak Mahindra Bank, which received licences in 2003, took the lead in hiking savings deposit rates up to 7%. Most banks in India still offer 4% interest on savings deposits.

"New entrants to the banking sector are likely to use product innovation as a differentiator to compete with existing players," said Shachindra Nath, group chief executive officer of Religare Enterprises. "Apart from attractive interest rates, one can expect new and innovative product/service bundles." 

With the focus likely to be on rural and semi-urban areas, rural consumers are also likely to benefit. "Our focus will be rural and semi-urban areas," said Hemant Kanoria, chairman and MD, Srei Infrastructure Finance.


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