Savings bank rates up, but fees may rise

The Reserve Bank of India’s move to deregulate interest on savings deposits, which will enable customers to earn more on savings, is also likely to increase banking transaction cost. Sachin Kumar reports.

The Reserve Bank of India’s (RBI’s) move to deregulate interest on savings deposits, which will enable customers to earn more on savings, is also likely to increase banking transaction cost.

The move will also make the free issuance of cheque books and debit and credit cards may be the thing of the past.

The RBI in its second quarter monetary policy review last week de-regulated savings bank rates, which was fixed at 4%.

Banks are expected to hike transaction charges to recover the additional cost incurred due to freeing up of interest rates on saving deposits in order to protect their profit margins.

“There is definitely an upward bias on (transaction) charges,” said Aditya Puri, MD and CEO, HDFC Bank.

Banks are also likely to charge small withdrawals from saving accounts and hike the amount required to keep as a quarterly balance in the account.

“Banks may increase transaction charges or cut down the free service offered by banks to customers,” said Rajiv Mehta, banking analyst, India Infoline.

Yes Bank, Kotak Mahindra Bank and IndusInd bank recently announced up to 2 percentage points hike in saving deposit rates. As savings accounts constitute around 22% of the total bank deposits, it provides a source of low-cost fund to banks. “Competition will force other banks to hike interest on saving deposits which will adversely impact their profit margins,” he said.

Most big banks have said that they will watch the market and then take call on deposit rates.