The country’s largest bank State Bank of India (SBI) may hike interest rates on savings bank deposits following finance minister (FM) Pranab Mukherjee’s announcement to exempt interest earned up to Rs10,000 on such deposits from tax.
“None of the bigger banks had increased interest on savings account as we are offering better services to our customers in terms of branch reach. We did not see a flight of savings account balance to banks offering higher rates. But, now, with exemption on interest income, there is a case for hike in rates,” said an official of SBI.
Reserve Bank of India ( RBI) had deregulated interest on savings account on October 25, 2011 allowing banks to fix their own interest rate on deposits.
However, RBI said that banks could differentiate in interest rates on deposits below Rs1 lakh and deposits above Rs1 lakh. Savings account interest rate was the last of the regulated rates.
Except three banks — Kotak Mahindra Bank, IndusInd Bank and Yes Bank — that are offering up to 6% interest on savings account deposits, none of the larger banks have yet revised their interest rates on savings account. These banks continue to offer 4% interest on savings account balances.
Bankers say that exemption of interest income earned from savings account is likely to result in customers shifting their deposits to savings account.
KR Kamath, CMD, Punjab National Bank said, “We will react based on the market dynamics.”
Public sector banks had opposed deregulation as their current accounts and saving accounts ( CASA) constitute about 30% of total deposits. Increase in interest on savings account will impact profitability of banks. Private banks with higher savings account ratio have also not yet announced increase in savings account rates.
There was no immediate response from private banks such as ICICI Bank and HDFC Banks.
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“None of the bigger banks had increased interest on savings account as we are offering better services to our customers in terms of branch reach. We did not see a flight of savings account balance to banks offering higher rates. But, now, with exemption on interest income, there is a case for hike in rates,” said an official of SBI.
Reserve Bank of India ( RBI) had deregulated interest on savings account on October 25, 2011 allowing banks to fix their own interest rate on deposits.
However, RBI said that banks could differentiate in interest rates on deposits below Rs1 lakh and deposits above Rs1 lakh. Savings account interest rate was the last of the regulated rates.
Except three banks — Kotak Mahindra Bank, IndusInd Bank and Yes Bank — that are offering up to 6% interest on savings account deposits, none of the larger banks have yet revised their interest rates on savings account. These banks continue to offer 4% interest on savings account balances.
Bankers say that exemption of interest income earned from savings account is likely to result in customers shifting their deposits to savings account.
KR Kamath, CMD, Punjab National Bank said, “We will react based on the market dynamics.”
Public sector banks had opposed deregulation as their current accounts and saving accounts ( CASA) constitute about 30% of total deposits. Increase in interest on savings account will impact profitability of banks. Private banks with higher savings account ratio have also not yet announced increase in savings account rates.
There was no immediate response from private banks such as ICICI Bank and HDFC Banks.
....more info