What does SB Account Interest Rate De-Regulation Means ?

RBI, in a surprise move, has finally deregulated the savings interest rates. RBI also highlights that India is amongst few economies where savings rate are still administered and that deregulation experience in other market has been favourable.

For Consumer – this means that Banks in India are free to offer higher interest rates on customers’ Savings Bank Accounts / SB Accounts. Until now they offered a fixed Interest Rate of something between 3% to 4%. However, with yesterday’s policy decision, Yes Bank immediately raised the rate of interest on Savings Bank Accounts to 6%.

So if you are a salaried employee, carefully planning your household expenses, then you stand to gain by small amount every month by this decision of RBI. If you carefully use your credit card and pay off full at the end of billing cycle then the amount sitting in your SB Account will grow at an assured rate of 6% which otherwise would have been spent.

Bank’s in Stress Test – Most bankers highlighted that customers do not move just for rates; brand equity, branch franchisee, service levels, customer trust also play a very important role. Most banks will face competitive intensity in either pricing or some loss on customer franchise.

Bankers to Pass on Cost to Customers:One of the bad actions of regulations in India is that the Company / Corporation passes on the cost back to the consumer in some in-direct way. Most private banks are talking about increasing transaction fees for all savings a/c transactions and are looking to pass increases through to borrowers. In any case consumers will still gain.

Average Balances PSU Vs Private Banks India An analysis of avg. balance shows that the PSU banks’ average deposit to be Rs15,000-Rs20,000 vs. private banks that are at Rs26,000-Rs30,000. Banks with high savings account proportion are SBI (36%), PNB (31%) and HDFC Bank (30%) will be affected by this move to some extent.