Bankers and analysts will be keenly watching out for signals sent out by the Reserve Bank of India (RBI) on deregulation of savings banks interests rate in the mid-year monetary policy review on Tuesday.
The RBI may, however, set up a committee to look into the matter. Deregulation of savings banks interest rates could push up costs as competition would force banks to offer higher and attractive rates of return to depositors.
Savings banks deposits are the least costly funds for banks. The RBI has fixed interest rates on such accounts at 3.5 % per annum.
“Deregulating interest rates on savings bank at this stage would increase costs and we cannot afford that,” the chairman of a public sector bank said requesting anonymity.
He said state-owned banks said higher savings bank interest rates could squeeze their profitability as they are already constrained by several activities such as priority sector lending that fetch lower returns.