Banks request RBI to reduce savings deposit rate to 2.5 percent

The bankers in a post-monetary policy review meeting with Reserve Bank of India Deputy Governor Usha Thorat, have requested for the reduction of the savings bank deposit rates in order to protect their margins.

The bankers said after adopting the new way of calculating the savings bank deposit rate the cost of their deposits will raise by around 80 basis points. Under the new calculations the rate will be calculated on the daily average balance.

M.V. Nair, chairman and managing director, Union Bank of India, after the meeting said, "We requested them to either reduce the savings bank rate or postpone the implementation. It will affect our margins and profit."

From April 1, as per RBI instructions all the banks have to calculate interest of savings deposit of customers on a daily basis.

At present the interest on savings bank is calculated on the basis of the minimum balance on the eleventh day to the last day of the month, as a result customers got 2.5% on their savings deposit.

Another banker who had attended the meeting stated, "We suggested that the savings bank rate be reduced to 2.5 percent from 3.5 percent now. They said they will examine it."

Nair, who is also the chairman of Indian Bank’s Association, pointed out that in view of new base rates the home loan rates might be raised compared to the pre-crisis level.

Nair added, "I think on an average, base rate could be 8.5-9.0 percent. There is a point there. If we add the risk premium, tenure premium, and then home loan could be higher."

Earlier in late 2008 banks started offering special home loan at 8 per cent as there was sharp decline in credit growth due to global crisis. Under these special rates bank fixed the interest rate at 8 per cent for the first three years and after the end of the tenure the rate was linked to the benchmark prime lending rate.

Most of these special home loan schemes are going to end in March.