Lenders are likely to ask RBI to lower interest rate on savings accounts to enable them to comply with the new directive requiring interest rates on these accounts to be calculated on daily balances. Interest rates on savings accounts are determined by the regulator are presently fixed at 3.5%.
This demand comes ahead of the April 2010 deadline to implement an RBI directive, which requires banks to compute interest on savings accounts on a daily balances. As of now, banks calculate interest on the average amount that is maintained from the tenth to the last day of the month which results in the interest cost being lower than 3.5%. For most banks, it ranges between 2.5% and 3%. Once interest rates are calculated on a daily basis, the cost of savings account deposit will be the interest rate on savings accounts.
“Banks are of the view that the interest outgo will increase by 50-75 basis points, which could be compensated if they hike the lending rates by 25 basis points. But at the same time, banks would not be comfortable hiking rates only to make up for this. Instead, banks would prefer to wait for RBI signals to hike rates,” pointed out a senior executive from a large PSU bank. Some banks are also likely to suggest to RBI to revert back to the current system where the interest is paid on the minimum amount maintained with them.
“Banks will take up this matter with RBI in the forthcoming meeting scheduled on January 14,” he added. RBI deputy governor Subir Gokarn will meet CEOs of large commercial banks on Thursday as a precursor to the credit policy.
Current and Savings Account Deposits (CASA) are considered core deposits which provide the bank with low-cost lendable resources. Banks with a higher ratio of CASA are considered to be relatively solid compared to those who rely on fixed deposits and wholesale funds. After April 1, banks with higher CASA deposits will be worst affected. Low-cost deposits comprise more than one-fourth of bank deposits. In case of SBI, CASA is as high as 42%, ICICI Bank has a CASA of 37% while PNB has around 40%.
Bankers are not keen on deregulation of savings rates for fear that this could trigger a rate war with upstart banks hiking interest rates on savings accounts to grow market share.
