Savings bank accounts may fetch higher interest if rates are deregulated

Your Savings Bank (SB) accounts may give you more interest if the Reserve Bank of India's plan to deregulate interest rates on such accounts materialises.

Banks are now offering 3.5 per cent interest on SB accounts. Once deregulated, the interest rates would turn more dynamic and might benefit some SB account holders, if not all, according to banking experts. “I feel that high net worth customers might gain by deregulation. The quantum of benefit, however, will depend on many factors, including the size of the balance sheet,” Mr S.C. Kalia, Executive Director, Union Bank of India, told Business Line on the sidelines of IDRBT (Institute for Development and Research in Banking Technology) technology function awards here on Thursday.

Mr P. Jayarama Bhat, Managing Director, Karnataka Bank, felt that the SB interest rates could go up. “As we cannot offer fixed deposit rates on SB, it has to be somewhere in between. I think, it might move up by about hundred basis points to 4.5 per cent or so.” “Deregulated SB rates will obviously be linked to the liquidity situation. So, there is a possibility of banks tweaking them in tune with changing circumstances,” Mr Asit Pal, Executive Director, Corporation Bank, said.

“This would require lot of customer education, especially in rural areas,” he added.

Level playing field

According to Dr K. Ramakrishnan, Chief Executive, Indian Banks' Association, the deregulation of SB accounts would create a level-playing field for banks. “Any deregulation is welcome. The SB portfolios of banks may not be impacted much as one may not move their SB accounts from one bank to another just because of some difference in interest.” As banks would prefer to go for low-cost funds, the rates on SB accounts could as well go down some times if there is surplus liquidity in the system, Mr R.S. Reddy, Chairman and Managing Director of Andhra Bank, said.

When asked on the likely implications, the RBI Governor, Dr D. Subbarao, said deregulation of SB rates was on the agenda of banks. “I want you to generate a debate on the implications to be taken by us as a feedback.