NEWS & ADVICE : FIXED DEPOSITS
Deregulation does not only imply rise in savings a/c rates
By Neelima Shankar
Jun 22, 2010
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The chances of interest rates on savings bank deposits getting deregulated seem to be on the cards with RBI Governor and deputy Governor discussing on it last week.

The Governor, Subbarao however said that RBI still needs time to come to a final decision.

Deregulation, however, does not mean rates on these deposits would go up. They may infact go down too. In other words, interest rate fluctuation is about to set in. The movement of deposit rates would depend on the profit margins of banks and availability of liquidity in the system.

"Savings rate may go down because it will be beneficial to bank margins," said Suresh Ganapathy, head of financial research team, Macquarie Securities.

Margins of banks were hit with daily interest calculation of savings account deposits being mandated by RBI from 1st April 2010.

"If deregulation happens, banks may change their savings rate and that way they can compensate for the loss in margin which occured due to payment of interest on savings account on a daily product basis," said P Sitaram, chief financial officer, IDBI Bank.

"Deregulation will lead to competition among banks to offer more variants of savings products," said Ananda Bhoumik, senior director, Fitch Ratings.

"In short term, savings rate will rise due to which spreads between savings rate and fixed deposit rates will narrow," said Vaibhav Agarwal, vice-president, research, Angel Broking.

"It's a win-win situation for banks as well as customers. Customers can start keeping a large part of their balances with the bank because of better rates," said Shyam Srinivasan, country head - consumer banking, Standard Chartered Bank.


 


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