Savings Bank rates deregulation help smaller banks gain share by offering 7%
By Neelima Shankar
Aug 30, 2012
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Since RBI deregulated the savings bank account rates in October 2011, many small banks and 10 foreign banks have raised their interest rates by 1 to 5% . The effect of the move can be seen in these banks gaining market share; post deregulation, thier market share has gone up from 1.8% to 2.1%.

Larger PSU banks like SBI, IDBI, PNB and private sector players like ICICI Bank and HDFC Bank have abstained from revising their interest rates as a response, though RBI repeatedly urged them to cut their savings accounts rates. However, these banks maintain that they haven't lost market share on such deposits.

Kotak Mahindra Bank, which increased its savings banks to 6% has seen a very positive response from the customers; the bank's savings accounts increased by 56% and the number of customers increased by 60%.

Another success story in private sector lenders is of YES Bank, that had a larger focus on corporate clients. The bank could attract low cost savings account, the bank offers 7% interest rate on savings account (3% more than its peers). The bank has been able to mobilize large amount of deposits under its salary accounts.

Improved alternative channels of transaction like ATMs, online transactions have made it easier for customers to maintain accounts in private account, which do not have as many branches as larger public sector banks.

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