SBI’s OP Bhatt beside freeing up of savings rate
The State Bank of India’s(SBI) outgoing chairman Om Prakash Bhatt joined former RBI governor YV Reddy, credited with saving the Indian financial system , in speaking beside freeing up of savings deposit rates as it may beat the very goal of financial enclosure and expose the poor to be cheated by banks.
“It has done well for a large number of depositors who cannot have chronic deposits,” Mr Bhatt, whose bank controls a fifth of the deposits, said at his farewell press conference. “There are four million people in this country who earn less than 50 a day and save about 30 or 40 a day and they can save the money in the form of fixed deposits or recurring deposits,” he said.
Some of the government organisations may also be at the receiving end, if rates are liberalised. “There are large numbers of government organisations who cannot keep money in fixed deposits and so if they keep it in savings deposits they get some money out of it,” he said.
RBI governor D Subbarao has set up a committee to study the consequences of freeing up of savings rate which is mandated at 3.5% a year now. All interest rates except rates on savings accounts are free now. Mr Bhatt is not unaided in raising concerns over freeing up of deposit rates. Former RBI governor YV Reddy recently said in an interview it may be detrimental to the interests of a large number of people.
“Many of the common people don’t have time to apply their mind and shift money from savings to deposits, etc. So, for heaven’s sake, give one banking instrument, one bank account where the man knows that this is the interest rate, this is the facility. This is required. I would even say, particularly, it is required for women in India whose money should be safe from their husbands,” Mr Reddy had said.
Banks, which are keen on lowering their cost of funds, are lobbying with the central bank for freeing up of savings rates. Those with lower balances could be short changed for rich clients who anyway are paid higher rates for funds in the name of bulk deposits.
Freeing up could lead to instability.
A bank may pay 1% or less for those account holders who have small deposits and 5% if they are willing to keep 50,000 in a savings account. This in turn will impact small depositors. Even public sector banks which carry-out government programmes would get in to a disadvantage.
“Deregulation of rates would be detrimental for PSU banks which control 72% of the banking market. We are the bank which does most of the real sector activity of the country in any case,” said Mr Bhatt. “So if we are weakened by the higher cost of deposits, our ability to do the kind of work will be affected,” he added.
Source: [Economic Times]
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