Banks are fighting Reserve Bank of India’s move on deregulation of the interest rate on savings bank accounts, the final frontier of regulated rates. Banks gain from low-cost savings deposits.
The apex bank wants to liberate the savings deposit rate to smoothen monetary policy spread, which it considers is affected by the present fixed-rate regime.
At 3.5% per annum, interest on savings accounts is the last controlled rate in the banking system, and a very controversial one, due to its effect on the common man. But banks are scared that making this economical product market-driven will lead to instability.
Consequently banks have told RBI that the time is not suitable for this step. The apex bank had called a meeting of senior bankers asking for their opinions on this sensitive topic.
A head of the bank present at the meeting said, “The savings bank interest rate acts as an anchor for other rates. One of the fallouts of deregulation would be that when there is a squeeze on liquidity, the rates could rise to the level of fixed deposit rates”.
He said further, “It will be a double whammy: there will neither be fixed deposits nor low-cost deposits”.
The country’s senior bankers, like ICICI Bank MD & CEO Chanda Kochhar, State Bank of India MD S K Bhattacharyya, HDFC Bank MD Aditya Puri and Standard Chartered Bank Regional CEO for India & South Asia Neeraj Swaroop will meet RBI Deputy Governor Subir Gokarn on Tuesday.
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