In its recent move, RBI has deregulated the savings bank rate, which means, from now on wards the rate of savings bank account's can be fixed by the bank itself. Earlier the rate was fixed @4 p.c./annum (Current Rates of Banks).
This move was immediately capitalized by Kotak Bank and Yes Bank, who has increased the Savings bank interest rate to 6% from 4%. These are small banks whose prime objective now is to acquire new customers, so Kotak has already started advertising in full swing. But the question raised to counter attack, why isn't the big banks are not offering a better savings rate, well the answer is simple: The book value of the deposits are very high and the interest need to paid for this is very high and it's not viable for these firms, so they have to offer some thing else to compensate.
SBI, has offered a new product where giving 9% interest on Fixed deposit with an option of withdrawing the amount anytime after 7 days thus converting it like saving account anytime without any penalty for above Rs.1 crore amount.
Thus this will either offer a better rate or product innovation can be observed in the near future.
This move was immediately capitalized by Kotak Bank and Yes Bank, who has increased the Savings bank interest rate to 6% from 4%. These are small banks whose prime objective now is to acquire new customers, so Kotak has already started advertising in full swing. But the question raised to counter attack, why isn't the big banks are not offering a better savings rate, well the answer is simple: The book value of the deposits are very high and the interest need to paid for this is very high and it's not viable for these firms, so they have to offer some thing else to compensate.
SBI, has offered a new product where giving 9% interest on Fixed deposit with an option of withdrawing the amount anytime after 7 days thus converting it like saving account anytime without any penalty for above Rs.1 crore amount.
Thus this will either offer a better rate or product innovation can be observed in the near future.
Thanks for providing this information. But don't you think with deregulation of savings account rate, it will become difficult for banks to maintain their interest income higher than interest expenses and will face an asset liability mismatch?In the long term, it will impact profitability of banks and hence, i don't feel most of the banks would go for it.
ReplyDeleteAbsolutely Roshni, there are pretty good chances for the mismatch unless other any innovative products are introduced. Well, that is why the move of increasing the interest rate are initiated only by new banks which doesn't have much base in the Indian banking market. To allure the new customer these small banks are using this tool. They can manage the Interest expense because they don't have much existing obligation, so this is a viable option for them, which is not for a Huge banks like ICICI, SBI etc.
ReplyDeleteit will impact profitability of banks and hence,They can manage the Interest expense.
ReplyDelete