The Hindu Business Line : Banks want savings deposit rate hiked

Bangalore April 11 Public sector banks (PSBs) have begun pushing for a revision in the savings bank (SB) deposit rates in bid to curtail disintermediation of low-cost deposits.

Banking sources said that this issue would be raised at the meeting between the Union Finance Minister, top honchos of PSBs and officials of the Reserve Bank of India (RBI) on April 19. Currently, only the savings bank deposit rate is administered by the RBI. This rate stands at 3.5 per cent. Sources said the savings rate has remained low, despite the upward momentum in interest rates. In fact, some of the bankers said that the effective yield available to the savers was less than 3 per cent on an annualised basis or less than half the annual inflation target of 5 per cent.

Bankers said that there was a case for a 50 basis point increase in the savings bank rate. One banker said, "We have earned large profits during the last four years and a hike would be one way of rewarding depositors." The case was reinforced by the recent hikes in the Cash Reserve Ratio and the repurchase rates, the bankers said. CRR was hiked by 50 basis points and the repo rate was revised to 7.75 per cent.

Any hike in savings bank rates, bankers said, would have little impact on the net interest margins. On the contrary, the impact would be positive for the PSBs in view of their large deposit clientele. Most PSBs tend to treat SB accounts as long-term funds in view of the minimum balance requirements.

CASA base

However, bankers said, the major reason for pushing for increase in savings bank rate was the need to increase the deposit base of the CASA (Current and Savings Accounts) basket. Many banks want to push this basket to 40 per cent from the current industry average of 30 per cent of the aggregate deposits which currently stand at Rs 26 lakh crore.

But one of the major worries of the bankers is the ability to sustain deposit growth. During the fourth quarter of the last financial year, one of the major elements that contributed to acceleration in deposit growth was accretion through bulk deposits. For the last quarter, of the last year, deposits had grown at close to 24 per cent. But bulk deposits are highly volatile in nature and prone to redemption pressures, as corporates start drawing on the funds for meeting contingencies. Savings bank rate hikes would partly offset the impact of such pressures, bankers said.

Derisking portfolio

Besides, it would provide some depth to the government securities market as well and allow bank treasuries to reverse the "derisking of investment portfolios" bankers said. Derisking implies that the average maturity of their gilt investments was about 2 years in the case of the PSBs and about a year in the case of the private sector banks.

More Stories on : Interest Rates | Public Sector Banks | Fixed Deposits

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