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Deregulation of savings bank deposit rates could have been aimed as an indirect instrument for controlling inflation, according to Mr S. Balachandran, Chief General Manager, State Bank of Travancore (SBT).
This is because the deregulation of these rates would add to the cost of funds for banks and be likely passed through by way of higher lending rates.
Speaking to Business Line , Mr Balachandran said managing the implications of this policy measure, though talked about for long in the market, would be a major challenge.
For banks, current accounts and savings accounts (CASA) amount to between 35 to 40 per cent of the total.
Of this, 28 to 30 per cent are savings accounts, which, at the current rates, are cheaper than fixed deposits. Upping the rate, would attract even more savings and add to costs in the bargain.
This would force even more focused rearguard action from banks, Mr Balachandran said. As for SBT, 80 to 90 per cent of these funds are of permanent nature and that in itself tells a story.
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