Indian Banks Association (IBA) has said that if the Reserve Bank of India's (RBI) idea to deregulate interest rates on savings bank account gets implemented, then it is seriously going to effect the stability of the banking sector.

"If the deregulation comes, there can be a flight of deposits which will hurt banks' stability," Indian Banks Association's Chief Executive, K Ramakrishnan said.

"Bankers (have) told the RBI that this is a CASA (Current And Savings Account)-driven industry and such a move can affect banks (adversely)," he added.

The bankers discussed this issue in a meeting of top bankers called by RBI to discuss pre monetary policy issues scheduled for 2nd November. Bankers attending the meeting were SBI CMD O P Bhatt, ICICI Chief Executive and MD Chanda Kochhar, Standard Chartered's India Head Neeraj Swaroop and HDFC Bank MD Aditya Puri.

Ramakrishnan said a lower-than-expected credit growth in the first-half (H1 FY11) was also discussed at the meeting.

"We also analysed the credit and deposit growth situation today. It was found that credit offtake has been slack due to corporates moving away to other sources of funds, but they will soon seek funds from banks as they embark on expansions," Ramakrishnan said.