If you think you will earn more on the funds in your savings bank account due to the 50 basis points hike in interest rate, you are mistaken.
You might be already paying it back in a different form through higher transaction costs.
The Reserve Bank of India had the hiked interest rate on SB accounts from 3.5 per cent to 4 per cent last week and also hinted that it might go for deregulation of SB rates.
This has put many banks in dilemma as even this 50 basis point hike could have significant impact on their cost of funds.
They say that this has to be passed on to the customers, although in a different form — levying account maintenance charges and increasing transaction fees.
Among the ideas being floated are reducing the number of withdrawals that are allowed every month in the savings bank accounts with higher charges if the prescribed number is exceeded.
The immediate impact, however, is one of higher costs for all banks.
“The hike in SB interest rate by 50 basis points will cost us anything between Rs 95 crore and Rs 100 crore. The question is whether we will be able to pass this on to customers or not,” Mr R. Ramachandran, Chairman and Managing Director, Andhra Bank, told Business Line .
BPLR revision
For the time-being, some banks are factoring the increased cost in revision of Benchmark Prime Lending Rates while preparing for deregulation of SB rates.
However, banks also would be forced to explore and exhaust all available options for raising their fee-income and finding new sources, according to Mr P. Pradeep Kumar, Managing Director, State Bank of Travancore (SBT).
The 50 basis points hike in SB rates is expected to translate into 12-15 bps hike in the cost of funds for the bank, he added.
Ms Renu Challu, Managing Director, State Bank of Hyderabad, said the higher SB rate and additional cost of funds have been absorbed by the BPLR/base rate hikes. But if rates are deregulated, then transactions costs might go up further,” she said.
A senior functionary of State Bank of India said hike in SB rates, seen together with the calculations of interest on funds kept in SB accounts on a daily basis, would pose a ‘challenge' to banks in managing their cost of funds.