Deregulation of interest rates not good thought: SBI
The State Bank of India (SBI) has said that deregulation of interest rates on savings account will not be good for the domestic banking system.
“Deregulation of savings account interest rate will not be good for the domestic banking system. It may at best aid a few banks and not definitely the system,” SBI chairman OP Bhatt said.
He advance said that the saving bank account is a unique Indian model and without it the Indian banks cannot go on lending to long-term projects.
Last month, Reserve Bank of India (RBI) governor D Subbarao had said that the central bank will soon come out with a discussion paper on deregulation of interest rates on savings accounts.
“There is a view that we should deregulate the interest rate on savings bank accounts too. We are examining the pros and cons of doing that and will shortly put out a discussion paper for eliciting feedback,” Subbarao had said.
At present, RBI only monitors interest rates on NRI deposits and savings bank accounts, while interest rates both to savers and borrowers work on the market principle of opposition among banks.
“Regulation has both costs and benefits. Excessive or inappropriate regulation increases intermediation cost, impedes efficiency and stifles novelty…,” Subbarao had said.
Banks at present pay 3.5 % on savings deposit.
While the RBI as part of the economic reforms programme deregulated fixed deposit rates, it had not freed the rates which banks pay on savings deposit.
While banks adjust fixed deposit rates keeping in view their asset liability position, they pay 3.5 % on savings bank as mandated by the RBI.
Source: [NDTV]
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