Savings bank accounts may stop earning fixed interest rates very soon. The Reserve Bank of India is planning to decontrol the interest rates on these accounts shortly. Savings bank rates are the only rates still controlled by the apex bank.
The central bank is shortly looking to establish a working group for talking about the effect of deregulation, according to RBI deputy governor Usha Thorat. She said, “An important consideration is whether deregulation of savings rates would draw more population into the fold of formal banking system”.
She added, “On one hand, the low cost savings accounts provide banks with low cost funds of an enduring nature which facilitate asset-liability mismatch and help lower lending rates. On the other hand, the costs not currently recovered in handling such accounts have to be considered as well”.
She also said, “Given the level of interest rates on bank deposits, common persons are lured by higher interest provided by alternate channels especially in the informal markets. Totally freeing rates could, in situations where there is virtual monopoly of banking, lead to lowering rates in some areas while leading to increase in other areas – it would need to be ensured that there is no discrimination between different customers of the same bank”.
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