What Saving Interest deregulation means for a common man?

October 31, 2011   ·   0 Comments

Interest rate on savings account has been deregulated by RBI.  According to RBI, each bank will offer uniform rate on savings of up-to Rs 1 lakh. Thereafter, Banks may provide differential rates on savings above Rs 1 lakh. RBI has mandated that savings bank account rate be linked with the policy rate at which the central bank lends short-term funds to commercial banks.  RBI increased the savings interest to 4% in April after keeping it unchanged from the last 8 years from 3.5%.

www.stockssavvy.comWith the RBI freeing interest rate on savings deposits, mid-size private lender Kotak Mahindra Bank, Yes Bank has announced new interest rates by being the aggressor for this move. It will offer 6 per cent interest on savings deposits above Rs. 1 lakh and 5.5 per cent on those below Rs. one lakh from November 1.

How it impact a common man & his life?

Pros

  • The most obvious benefit is the increased return to regular savers on their money lying in normal savings account. According to estimates, Indians have 26% of the money deposited in the savings account. In the past 12 or 18 months the savings rate there has been a significance rise in the saving rate. For those who tend to be less financially prudent about their money lying idle in their salary accounts, this would result in better returns.
  • Further short-term deposit rates(for 90 days, for 180 days & for 1 year) are also expected to rise which will help old age investors and pensioners looking for short-term deposits and debt funds as investment opportunities.
  • Further the competition amongst banks will increase which if effectively monitored and controlled would lead to increased efficiencies in the banking space.  Increased competition will lead to development of innovative products thereby transforming the savings account from a bank account to a safe & secure investment avenue. This will increase the attractiveness of savings deposit account, which is expected to improve the savings profile of a common man.

Cons:

  • While RBI for long has been keen on freeing it, the industry body IBA was opposing it saying any such move would push up the costs of banking services like ATMs charges, money transfers and cheque books to protect margins.  The second largest private lender HDFC Bank head Aditya Puri was categorical in stating that “whether banks increased the SB rates or not, the cost of banking services would definitely go up following the RBI move”.
  • The RBI move is not good news for larger banks with high savings account balances like SBI, HDFC Bank, ICICI Bank, PNB and Axis Bank or any other state-run banks.

While the Other larger banks are in wait & watch mode, interestingly, both the banks which has increased savings interest rate have not put any new additional charges on their customers bringing little cheer to the customers who are tired of Inflation & increased rise interest on their loans.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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