Savings rate deregulation may be a bad idea, say experts

The war continues. RBI has been continuously showering interest rate hikes on the advancing inflation, making GDP growth the sacrificial lamb in the process. Today, RBI yet again spiked up rates another 25 basis points even as GDP growth targets were revised downward to sub-8% levels. March-end inflation projection, nonetheless, remains unchanged at 7%.

So the question now turns to the high cost of funds and effect it is likely to have on the industry. Experts worry that we could now be heading deeper into the whirlwind, towards a situation where demand starts to taper.

Speaking to CNBC-TV18, RK Bakshi, executive director of Bank of Baroda says that this policy could be a landmark for the banking industry with regard to the savings rate deregulation and formation of working group for credit pricing.

With respect to cost of funds and its impact on profits, he says that that depends on how much the rate is hiked by. According the latest policy, investment up to Rs one lakh will return with same interest rate.