The Reserve Bank of India has deregulated savings bank interest with the caveat that banks must offer uniform rates on deposits up to Rs 1 lakh; and can offer differential rates for those above Rs 1 lakh. But there are finer points.
The average CASA deposits of banks are of the order of about 35 per cent; Of these, about 60 per cent are below the Rs 1 lakh category.Secondly, the SB rates are 4 per cent. Suppose one bank decides to offer say 5 per cent and other banks decide to follow suit, it will push up cost of deposits. Banks with large SB deposits will suffer the most as they have to put up with higher cost of deposits.
The differential rate on high value deposits has the potential to substantially increase the cost for banks as customers, especially the ‘High Networth Individuals will start demanding high interest rates , higher than what prudential ALM practices may permit them.
If banks try to offset the pressure on margins by hiking base rates, borrowers will suffer and more delinquencies may happen.
G.K.Murthy
Bangalore
Farmer's friend
The article “New legal regime gets under way” ( Business Line , October 24) is an excellent review of the LARR Bill of 2011.
It would have been even better if the author had commented on the politics behind the Bill. First, we had the declaration of compensation at six times the market value; the term ‘market value' hadn't even been defined in the Bill.
Soon thereafter, the proposals made it four times. The circle rate in Delhi is Rs 53 lakh per acre (4,000 square metres) or Rs 1,325 per square metre! Still, the builders queue up to buy the land, as the cost is recovered from the buyers. But why should this be at the cost of the farmer?
Col S. Chand