Only a little over a week ago, a handful of private banks had increased the interest rate on savings deposits. However, these lenders already claim the number of enquiries for opening an account with them has surged.
The enthusiasm was seen not only among retail depositors; even small and mid-sized companies have expressed interest to open salary accounts of their employees with these banks.
“The response has been extremely positive, even though the hike in savings deposit rate happened recently. On the retail side, the demand is mostly coming from senior citizens who now have the opportunity to earn higher interest income on their deposits," said Rana Kapoor, founder, managing director and chief executive, YES Bank. The bank was the first in the country to raise the savings deposit rate after it was de-regulated on October 25. The private sector bank has raised its savings deposit rate by 200 basis points to six per cent.
"Every day, we are getting about eight to ten enquiries from our corporate clients. The companies feel giving their employees an opportunity to earn higher interest income on salary accounts would keep them motivated," Kapoor said, adding the momentum in moping-up low cost deposits would reflect in the earnings in the third quarter. YES Bank’s savings deposits constitute two per cent of the bank's total deposits.
Kotak Mahindra Bank had also increased the savings deposit rate and offers six per cent rate on savings deposits above Rs 100,000. It pays 5.5 per cent interest on savings deposits below Rs 100,000.
"The initial response has been good, and we are seeing interest from all segments. Upper-end customers who have many bank accounts are exploring options to consolidate their bank balances with us. As a result, we are seeing balances in many of these savings deposit accounts increasing. Also, there are enquiries from new customers who do not have accounts with us," said K V S Manian, group head (consumer banking), Kotak Mahindra Bank.
Some banks however said it was premature to assess the impact of increase in savings deposit rate on their financials, but they remain confident that it will strengthen their low-cost retail deposit base over the medium to long-term.
Kolhapur-based Ratnakar Bank said depositors in semi-urban and rural centres, where the penetration of investment products was relatively low, were keen to take advantage of the higher interest rate on savings deposits. The banks' metro branches have also seen a rise in customer queries on account opening.
"As a result of the savings rate increase by our bank, we are indeed seeing a lot of client interest from across our footprint --- metros, semi-urban and rural," said Rajeev Ahuja, head (strategy and financial markets), Ratnakar Bank. The lender's savings deposit rate has now been revised to 5.5 per cent.
"It is too early to have a definitive view and the impact of such seminal changes should to be evaluated over the medium to long term. This is a significant piece of consumer value proposition, and it would have an impact on how the savings product is marketed, and also on innovation in product features and its delivery," Ahuja said.
Public sector banks and large private lenders have not revised their savings deposit rates. Many bankers feel savings deposits were primarily used for transactional purposes and a marginal difference in rates would not lead to significant migration of clients.
Some bankers were also critical of the Reserve Bank of India (RBI) for de-regulating the rate at a time when economic activity had slowed and asset quality of banks was under pressure.
"I have been told by some bankers that the time for de-regulation was perhaps not right, since the non-performing asset cycle is on the upswing. We all know the truth --- there never would be a completely appropriate time for such reforms," said K C Chakrabarty, deputy governor, RBI.
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