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Ball rolling to free savings deposits

You may look to earn more from your savings bank deposits as the Reserve Bank of India is in favour of deregulating the savings bank deposit rates.

india Updated: Jun 17, 2010 21:37 IST
HT Correspondent

You may look to earn more from your savings bank deposits as the Reserve Bank of India is in favour of deregulating the savings bank deposit rates.

The process has already begun through a debate on the issue. The catch is that banks may increase service charges if deposit rates go up, because that would mean higher costs for banks, say industry executives.

“We have initiated a debate in the last policy. The direction is clear in favour of deregulating all interest rates, including savings bank,” K.C. Chakrabarty, deputy governor, RBI said on Thursday. “But the decision will be taken, when to do that, after having adequate debate on the issue.”

Industry experts feel that the process has already begun through the daily interest rate calculation beginning April 1 on all savings bank deposits. It is only the savings bank rate which is administered as of now and 3.5 per cent is the prescribed rate.

Industry players feel that this will lead to a rise in the savings bank deposit rates as smaller and newer banks will look to get deposits by offering higher rates.

“Competitive pressures can come in and the general tendency for the rates will be to go up,” said K.V.S. Manian, retail liabilities, Kotak Mahindra Bank.

However, experts agree that any hike in the rate will eat into the benefits that banks get on low-cost deposits and hence banks may come out with various options to balance it out.

“Traditionally the model has been to keep rates low to keep costs low, but as a result of deregulation we may see banks increase their service charges for various services along with a hike in the savings banks deposit rate as a trade-off for the same,” said another banker.

So, while depositors may expect higher interest rate on their savings bank deposits, the deregulation may also lead to a rise the charges by banks.