A recent press report said that the rise in savings deposits is likely to build up pressures in the profitability of the banks as the cost of funds would be higher in the midst of slowing growth in loans and advances.
Mr. Suman Chowdhury, the Head of Crisil Ratings said that the rise in savings deposit interest rates would increase the pressure on the profitability of the banks.
The rating agency also predicted that the return of the banks on the asset ratio would shrink by five basis points due to the higher rates for savings deposits.
The Reserve Bank of India has instructed the banks to follow a uniform interest rate for savings deposit up to Rs.1 lakh irrespective of the customer. The Central Bank also allowed the banks to follow their own interest rates for deposits that exceed Rs. 1 lakh. The banks have been paying 4 per cent interest on savings deposits.
According to Mr. Tushar Poddar and Mr. Prakriti Shukla, Economists of Goldman Sachs this move of the RBI would have a positive impact on the economy though it would have a negative impact on the banks as the cost of funds would increase. Besides, this deregulation might lead to rate war among the small and medium sized banks.
Recently banks have asked the RBI to take a break from its monetary tightening cycle which has made home loan and other loans very expensive.