SBI’s move to lower the interest rates on savings accounts is a wake-up
call for savers. As far as interest rates on savings accounts are concerned, the
State Bank of India has moved to lower the rate which was hitherto kept at 4
per cent by nearly all banks. SBI cut 50 bps in the
savings deposit rate. Thus it has now set the ball rolling for others to follow
suit. The rates on FDs are plummeting
by more than 2 percentage points over the past two years. This pinches the large population of Indian savers.
For savers, SBI’s cut should serve as a wake-up call, one that nudges
them to consciously shop for higher returns, rather than letting funds idle in
savings accounts. For the
economy at large, pushing household savings to financial assets can provide a
fillip to investments.
Ignorance of law is no excuse; so is ignorance of economics/finance.
Buyer beware is an axiom. Indian public look at government bank deposits
(including co-operatives), gold and real estate in that order for parking their
savings. Rightly or wrongly, they are most comfortable only dealing in
currency. Also, we are quite comfortable with the lethargy experienced in
government utilities - railway services, bank, electricity, insurance and
organizations like PSU banks, LIC, GIC, BSNL etc. In fact customers of these
organization are very possessive about these and defend them.
So, you feel for the customers who lose interest because of SBI move; There
are some optimists who feel that SBI might report increase in deposits in the
next 6 months and also increase in their income. Right now another customer is
parking his redemption from mutual funds in to his savings bank account.
One needs to advocate the banks not to cut interest rate on deposits
which is one of the key sources of income to them. Time and again the interest
rate is reduced gradually and forces depositors to see some other source for
placing their savings with reasonable interest and safety. But banks are not
bothering the hiccups and they take situation based decisions in reducing the
rate.
As per banking-history, in the beginning, banks were charging fee for
rendering the service of safe-keeping (custody) of their clients’ money, on
which no interest was paid. A time might come when banks would be paying meager
interest on savings bank accounts. Savers will remain at the mercy of banks.
While media and analysts dwell in detail on inflation, RBI’s base rates
and inadequate transmission of benefits of rate cuts, savers remain a neglected
lot. To add insult to injury, banks bargain for reduction of interest rates on
savings instruments with long term maturities outside the banking system as a
pre-condition for reduction in lending rates following reduction in bank rate.
GOI has been obliging.
This indecent challenge from banks which have a monopoly over rural and
semi-urban savings has long-term implications. These include savings migrating
to non-financial sectors and the traditional moneylender resurfacing in new
attire. Earlier the regulator and GOI wake up, the better. Public memory may be
short. But savers who keep their savings in banks they trust cannot be expected
to forget why they chose bank deposits as an instrument of savings, in the
first place. State bank of India and major private sector banks have been
challenging the common sense of two categories of savers particularly, since
the beginning of the current decade. The savers they have been taking for
granted are, (a) elders who keep their ‘retirement corpus’ in bank deposits and
(b) the High Net-worth salaried class who maintain huge balances in savings
bank accounts.
In 2011, when after long persuasion by depositors, RBI deregulated
interest rates on Savings Bank accounts, these banks made a mockery of the
regulator’s guidance by either just ignoring the RBI circular (banks like SBI)
or making new stipulations and fixing new thresholds for payment of interest on
SB accounts (big private sector banks), ensuring status quo in outgo on account
of interest payments.
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