Savings a/c interest rate may touch 5.5% | india | Hindustan Times
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Savings a/c interest rate may touch 5.5%

Your savings deposit may earn at least 150-500 percentage points more than the current 3.5%, if the rate of interest on saving deposits is deregulated in the near future. Sachin Kumar reports.

india Updated: Apr 30, 2011 01:12 IST
Sachin Kumar

Your savings deposit may earn at least 150-500 percentage points more than the current 3.5%, if the rate of interest on saving deposits is deregulated in the near future.

The banks are expected to link saving deposit rates to term deposit having tenure of 15 to 45 days to the term deposits having tenure of two years. Banks are offering interest of 5-5.5% on term deposit of 15 to 45 days while term deposit of up to two years tenure are getting interest of 8-8.5%.

The Reserve Bank of India (RBI) on Thursday released the discussion paper on the deregulation of the rate of interest on saving deposits.

"Banks can price the saving deposits in such a way that the rates will be higher than the current rates on savings of 3.5%, but lower than the existing rates on the one-year term deposits," said Mahrukh Adajania, banking analyst, Standard Chartered Bank.

In the short-run, customers may see banks offering very high but in the long-run it will be linked to short-term deposits. "In the long-run, savings rate should track the rates on shorter tenor term deposits say the 15-45 day term deposit rates," added Adajania.

Some stakeholders, however, feel that deposit rates will be linked to term deposit of one to three years and not to deposit of shorter tenure.

"As saving deposits are comparatively stable, the banks may link them to medium-term deposit rates and offer higher rates," said a senior executive in a private sector bank, who did not wish to be named.

According to bankers 'medium-term tenure' will be different for different banks, but on the broader range it will between one to two years. The banks having low proportion of saving deposits or low CASA (current account saving account) ratio will take the lead in hiking the deposit rates as these deposits act as source of low cost of funds. "CASA is crucial for every bank's profitability, so banks having low level of saving deposits will not mind in offering high deposit rates," the executive said.

If the liquidity is tight just like it is now, the banks with low CASA will hike the deposit rates in to replace higher cost retail and corporate term deposits with longer lasting savings deposits.