The credit policy announcement by the Reserve Bank of India may have left many whining, but has brought smiles to savings bank depositors.
Now your saving banks account will earn more interest. The regulator has hiked the savings bank rate by 50 basis points to 4 per cent. Many of us who are used to keeping more cash in hand for various transactions, may now think twice before withdrawing cash.
Mr Pratip Chaudhuri, Chairman, State Bank of India, pointed out in Chennai on Monday, that offering attractive rates on savings bank account post-deregulation may bring in a part of the Rs 9-lakh crore of cash held by people.
But the savings bank rate hike is not necessarily a precursor to deregulation of the rate. The RBI Deputy Governor, Dr Subir Gokarn, said categorically that an increase in the savings bank deposit rate by the central bank was not an indicator of deregulation.
Last week, the banking regulator had issued a discussion paper on deregulation of the savings banks deposit rates.
Impact on banks
This may not be good new for banks, although the impact may vary depending on the number of savings bank accounts they have.
Ms Nupur Mitra, Executive Director, Indian Overseas Bank, said that the 50 basis point hike in saving bank deposit rate would have a marginal impact on the profitability of banks.
Credit rating agency CRISIL said the central bank's move to increase the savings account rate is likely to pull down the net interest margins of bank. NIM is a measure of profitability. If the RBI goes ahead and deregulates the interest rate, then banks would scramble for low-cost savings deposits.
From April 1, 2010, the RBI had mandated banks to pay an interest of 3.5 per cent on the daily balances held by customers. Until then, banks were paying only interest on the minimum balance held by a depositor. This was the first step for depositors to earn more interest on their savings account.