Let banks fix their savings rates

RBI governor D Subbarao on Friday said he was in favour of deregulating interest rates on savings accounts as part of financial sector reforms. Deregulation of interest rates (including savings rates) is an important way forward for reforms. The base rate system that would come into effect from July 1 is also an important reform method, he said in Hyderabad. The concerns expressed by banks on the issue should be debated,he said. RBI deputy governor KC Chakrabarty had said on Thursday,We are in favour of deregulating all interest rates,including savings rate. We have initiated a debate in the last policy… the deduction is very clear,clear in favour of deregulating all interest rates,including savings banks. But the decision will be taken,when to do that,after having adequate debate on the issue, he had said.

However,bankers felt that any such move would lead to wide variation in the market. On the issue of deregulating interest rates on savings accounts,the banking community remains a divided lot. While one section of bankers feels that any sudden change in the cost structure of the saving rate may destabilise the entire system another section of bankers welcomed the move.

Bankers feel their current focus is on various issues like financial inclusion,base rate,agriculture and SME loans and they are not prepared to go for any sudden change in the cost structure. Rather the bankers are of the view that this kind of intervention by the RBI can take place when rate paid on savings account come closer to the one-term deposit . Currently the banks pay an interest rate of 3.25% on the saving bank deposits,whereas the interest rate on one year term deposits hover above 6.5 per cent.

Requesting anonymity,the head of a state-owned bank told FE that in case the interest rate goes up on savings bank deposit post deregulation,then the banks will have to increase their base rate too.