Tuesday, October 25, 2011

Savings Bank Interest rate deregulated in India

According to an RBI notification today, Saving's bank interest rate has been deregulated in India. Indian Express has the report here: RBI frees savings deposit rates, hints pause in further rate hikes
The below is from the news report.  

Cheering depositors on Diwali eve with deregulation in the SB deposit interest rate with immediate effect, the RBI said banks are free to determine their savings bank deposit rate if they meet two conditions. 

Each bank will have to offer a uniform interest rate on savings bank deposits up to Rs 1 lakh, irrespective of the amount in the account within this limit. “Second, for savings bank deposits over Rs 1 lakh, a bank may provide differential rates of interest, if it so chooses. However, there should not be any discrimination from customer to customer on interest rates for similar amount of deposit,” Subbarao said. 

News papers are going ga ga about this news. The idea that is being spread around is that the rates will increase and customers will earn more.

or really???

Does RBI really think that private banks will be acting on the interests of common man and provide better rates? Even if it does, has RBI given any direction on the various caveats and conditions that will be imposed by the banks for the "better" rates? Will common man and elderly who depend on the saving rates be protected from future rate decreases?

I can think of no better example than in US, where the saving rate is...wait for it... an awesome 0.5% per year. if you are lucky you will find a bank here that will offer you 1%.

I am no economic expert or a finance expert. But I am concerned that people are not being exposed to both sides of the coin in this matter.

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