Banks against deregulation of savings rate, write to RBI

Banks have written to the Reserve Bank of India (RBI) stating that they are not in favour of a deregulated savings rates regime, saying such a move would "hurt everybody" in the system.

"It is the view of our members that it is not an appropriate time to deregulate the savings rate because of the upward bias in the interest rates currently and the general high rate scenario," Indian Banks Association (IBA) Chief Executive K Ramakrishnan told PTI.

The Reserve Bank's recent moves to calculate interest rate on a daily basis and increase the interest rate on savings accounts to 4% is already hurting the banks, he said, adding the IBA recently wrote to the RBI about its reservations on the subject.

Deregulation of the savings rate will "hurt everybody", Ramakrishnan said, stressing that a possibility of the rate going down from the present 4% cannot be ruled out if deregulation were to happen. The savings bank rate is the only regulated rate presently and a source of low cost funds for banks. It is feared that a competition within lenders to grab the low-cost deposits will result in the rates going up.

In what is seen as preparing the ground for a deregulated savings rate regime, the RBI had increased the interest rate to 4% in May this year. The RBI has also put a paper for discussion on the issue in April.   Meanwhile, Ramakrishnan said that if the deregulation were to happen, it should be in "totality" and not restricted to the rates alone.

"We should be allowed to charge for the transactions which are free presently. Let the market decide that as well. Nowhere else do we have facilities like ATMs, cheque books, fund transfers which come free," he said.