DEPOSITORS' BODY WANTS RBI TO SET FLOOR RATE FOR SAVINGS BANK ACCOUNT

The Reserve Bank of India should determine the floor rate for the savings bank (SB) deposit interest rate without prescribing any ceiling, according to the All India Bank Depositors Association (AIBDA).

To protect the small depositor and ensure healthy competition, the RBI should determine the floor rate from time to time depending on the market conditions and the prevailing inflation situation without prescribing any ceiling rate, suggested the Association.

“The RBI must complete the reform of deregulating deposit interest rates by extending the deregulation to SB deposits…This would strengthen the process of financial inclusion as well as ensure market-based returns to the depositors due to competition among banks,” said the AIBDA in a statement.

The prescription of floor rate should be a permanent feature to protect the interests of small depositors.

UNIFORM RATE

The interest rate for all savings bank depositors in a bank must be uniform even as the levying or waiving of service charges for cheque facility or any other facility may vary from bank to bank as per the dictates of the competitive market environment, according to the Association.

The Association emphasised the need to stipulate fair and reasonable service charges based on average costing of different banks.

This is to ensure that banks do not capitalise on the marketing and competitive strategies to attract current account, savings account (CASA) deposits and recover the higher interest paid by increasing service charges on traditional services (such as cheque collection, demand drafts, and so on, offered by banks.

INCENTIVE FOR LOYALTY

Given that savers such as senior citizens, pensioners, and people in rural areas find it difficult to change their bank, resulting in their loyalty to the respective bank becoming a permanent feature, AIBDA noted that the savers need to be appropriately rewarded. For instance, with incentives such as additional interest over the floor rate (at least 50 basis points higher).

Enough flexibility should be given to individual banks to introduce innovative products in relation to savings bank deposits.

The present interest rate policy on savings bank deposits, according to the Association, is not in sync with the process of liberalisation and deregulation of the financial sector in the country

“SB deposit rate still continues to be regulated by the RBI.

This has resulted in SB depositors being deprived of market-determined returns even in a liberalised framework of our economy,” said the AIBDA.

The Association observed that there is a sense of complacency amongst banks that SB deposits are an almost assured source of cheaper funding for them on a virtually perpetual basis.

This feature, says the AIBDA, is certainly not in conformity with the philosophy of building competitive market environment among banks.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article2062345.ece