Bankers, especially from the public sector, are against deregulation of savings bank (SB) deposit rates. At a pre-monetary policy review meeting with the Reserve Bank of India today, they feared this would unleash unhealthy competition in garnering deposits.
At the meeting, called to gauge the views of select bank chiefs on credit and deposit growth, interest rates, deregulation of the SB rate, the non-performing assets situation and the transition from the Benchmark Prime Lending Rate to Base Rate-linked lending regime, the bankers are believed to have told the RBI that deregulation of the SB rate could trigger volatility in the interest rate on these deposits.
Foreign banks, due to limited branch network, rely heavily on the call money market to lend. Bankers say these banks could go overboard by quoting higher interest rates on SB deposits once the rate is deregulated.
Currently, the 3.50 per cent interest rate on SB deposits serves as a floor rate for all deposits in the banking system. Once deregulated, the SB rates could fluctuate wildly, depending on the liquidity situation. If call money rates shoot up, SB rates would go up, and vice versa. So, whether the depositor will gain or lose, it will be difficult to assess. At least now there is a certainty that the depositor is earning 3.5 per cent interest daily on SB deposits, said a banker clued into the developments.
“Most banks are against the de-regulation of savings bank rate as they feel it would give rise to competition, and could hit the growth of Current Account, Savings Account deposits. Also, depositors have been compensated by the daily calculation of savings bank rate and the de-regulation would not serve any additional purpose,” said Dr K. Ramakrishnan, Chief Executive, Indian Banks' Association.
On credit growth, bankers told the RBI that credit offtake is still sluggish because corporates are resorting to internal accruals or other sources such as short-term debt funds. But bankers are hopeful that going ahead credit demand will pick up as corporates have lined up expansion plans. So, corporates will borrow from banks later, if not now.
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