RBI thinking of deregulating savings bank deposit rates

The Reserve Bank of India is thinking of deregulating savings bank deposit rate. At present this is the only rate which is fully administered.

Dr K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, said on Thursday, “We are in favor of deregulating all interest rates, including savings bank. The direction is very clear. But, the decision will be taken after having adequate debate on the issue.”

Except interest rates of savings deposit accounts, non-resident Indian (NRI) deposits, and export credit, all other interest rates are deregulated. Regarding wide variation in the interest rates on savings bank deposits across banks, Dr Chakrabarty said he does not except wide range variation in savings bank rate after the deregulation. At present all banks are giving 3.5 per cent interest on savings bank deposits.

While speaking on the sidelines of a banking summit he said, “This is a highly competitive market. Prices do not vary much. But what will be the rate, what customers will get, will depend on market conditions.”

Dr C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister has also favored deregulation of controlled interest rate structure. He said on the sidelines of a seminar that deregulation of savings deposit rates is matter of time.

According to banker’s deregulation of savings accounts will help in better asset-liability management for banks and this will increase competition amongst banks in offering better price which will benefit savings account holders.

Every individual whether businessman or a common man have savings bank account for non-commercial transactions. Besides doing day-to-day banking transactions people earn 3.5 per cent return on the savings they have done. However banks have put some ceiling on the total number of withdrawals permitted during specific time periods. Banks also insist on certain minimum balance to be maintained in savings accounts. The Deputy Governor point out that the series of interest rate deregulation has been an important component of the reform process which has played an important role in greater efficiency in resource allocation.

In the recent times RBI most important reform on the savings bank deposit front has been the payment of interest on a daily product basis which became effective from April 1. Before this, banks used to calculate interest on savings bank accounts on the minimum balance held during the period from the 10th day to the last day of each calendar month as a result depositors earned much less than the prescribed 3.5 per cent interest on their savings.