Savings bank deposits might fetch lower returns. For the first time since rates on these were deregulated in October 2011, leading banks are considering reducing it, as the interest rate cycle has started showing a downward bias.
Bankers say a cut in the savings bank rate is needed to protect net interest margins (NIMs).
“There is a distinct possibility banks may cut savings bank interest rates. The fact of the matter is if the whole interest rate structure comes down and you don’t cut the savings bank rate, your margins would be impacted,” said Aditya Puri, managing director, HDFC Bank.
To protect NIMs, banks have already cut fixed deposit rates on retail term deposits across maturities.
For many quarters, HDFC Bank has maintained a net interest margin of 4.15-4.35 per cent. Now that the second-largest private sector lender is considering a cut in its base rate (the benchmark rate to which all loans are linked), its margins would be under pressure if the cost of funds do not decline.
HDFC Bank’s margins are boosted by the high proportion of low-cost deposits. The bank’s current account and savings account deposits account for 46 per cent of total deposits, one of the highest in the sector.
Most commercial banks pay four per cent interest on savings bank deposits, though some offer more.
YES Bank offers seven per cent on deposits of more than Rs 1,00,000, while Kotak Mahindra Bank and IndusInd Bank offer six per cent. These banks had raised the interest on savings deposits after the Reserve Bank of India (RBI) had deregulated these rates. This had helped the banks garner more of these deposits.
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