Call for deregulating SB rates

Call for deregulating SB rates

The proposal to deregulate saving bank interest rates has come against the backdrop of the RBI mandating all banks to pay an interest rate of 3.5 per cent on daily balance of savings accounts.

In a memorandum submitted to the Finance Ministry the Assocham-one of leading chambers of industry- strongly advocated deregulation of saving bank interest rate. It said, "as the country pursues high growth strategy while braving pains of high inflation, a large volume of bank deposits parked in savings accounts is currently facing severe negative returns."

Cost reduction

“The RBI has recently advised banks to reduce the cost of intermediation by increasing deposit rates and reducing lending rates. For the saving bank account holders the rerun could be more if it is deregulated," the Assocham Secretary General D S Rawat said.

A study by Assocham shows that a substantial portion of the Rs 53 lakh crore worth of deposits with Indian banks is in saving accounts.

At the same time, bank advances total Rs 41 lakh crore, showing a deposit-credit ratio of 73 per cent.

The banks can afford to absorb a part of likely rise in burden on banks due to possible rise in rate of interest rates for savings bank accounts in the wake of deregulation, Rawat said.

“Let there be a competitive environment where cost reduction determines the capability, and not regulated interest getting access to low-cost funds," the Assocham paper suggests.

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