The Reserve Bank of India (RBI) is looking at the possibility of deregulating interest rate on savings account deposits and will set up a working group to examine the issue.
"The deregulation of savings bank interest is an issue which is on our radar," said Usha Thorat, deputy governor, RBI while addressing a banking conference organised by the Federation of Indian Chambers of Commerce and Industry and Indian Bank Association.
"A working group is being set up to debate the issue and draw conclusions," Thorat said. At 3.5 per cent per annum, interest on savings accounts is the only regulated rate in banking system.
An important consideration should be whether deregulation of savings rates would draw more population into the fold of the formal banking system, Thorat said. Given the level of interest rates on bank deposits, common persons are lured by higher interest provided by alternate channels, especially in the informal markets.
For achieving the goal of financial inclusion, there is need for more tie-ups between banks and non-banking finance companies to ensure better last mile connectivity, Thorat said.
State Bank of India chairman O.P. Bhatt said that it would be good for customers. "It will be good for the consumer and what will happen is within the saving bank product there could be a range of sub-products." It would become challenging for banks to retain their share of low-cost deposits, he said.