Saving banks interest rates should be market determine: RBI Dy.Governor

The RBI Deputy Governor K C Chakrabarty expressing his views on saving bank rates has said that the interest rates on saving deposits should be determined by the market. He further said 'If all the other rates are deregulated, then why savings rates should not be deregulated? The only question is when and how.'

However, there is difference between the banks and the RBI on the issue of deregulation of saving rates. Earlier, Indian Banks’ Association (IBA) an organization of public and private sector banks had written to RBI and expressed the view of lenders against deregulating the saving banks interest rates, which currently stands at 4 per cent.

RBI Deputy Governor said that a decision would be taken on the basis of a consensus by all stakeholders. The RBI already has floated a discussion paper on freeing up of the saving banks interest rates.

Interest rates on fixed deposit schemes were deregulated in 1997 but unlike the time deposits, the SB account interest rates are still regulated. RBI in it May policy review hiked the savings bank accounts rate by half a percentage point, to four per cent.

However, the move raised the cost of borrowing for the banks which leverage high on the ‘Current Account, Savings Account’ (CASA) funds. The CASA deposits are much cheaper than the time deposits, where the going rate for six-months and above is about eight per cent.