Bookmark and Share

Indian Banks Scared of Competition in Savings Rate eroding Supernormal Profits oppose Deregulation

3 Comment

India’s Central Bank RBI had proposed to deregulate the savings rate on Bank Deposits as part of the Financial Reforms.Note Savings Rate is the only regulated interest rate in the Banking Sector.This has led to a huge windfall for Indian Banks.With a savings rate of  around 3.5% and lending rates of 12%,Banks manage to reap profits from this huge spread in the rates which is commonly known as the “Net Interest Margin” or NIM.Indian NIMs are very high compared to that of other countries because of this discrepancy.Indian consumers are known to deposit most of their savings in Banks as Stocks and other Assets are considered untrustworthy.Banks with high proportion of their deposits in the form of these savings deposits have much higher profitability.Note RBI has increased the returns on the savings deposits recently by shortening the length of the cumulative returns.

Indian Banks don’t want competition in this space as they will lose the supernormal profits that they make because of this regulation.Private Banks  are at the forefront of this opposition which is ironical as they should are the first in welcoming deregulation and competition.However they like the close oligopoly which the Indian Banking Space has become.With RBI strict on new banking licenses,it has become a cosy club for a host of private and foreign banks.The savings rate will shoot up to near fixed  deposit rates as banks compete with each other to acquire these cheap deposits.The RBI is also going slow by setting up committees when instead it should move much faster to benefit Indian Consumers.

Banks to defy RBI move on savings rate deregulation – Rediff

Banks are putting up stiff resistance to Reserve Bank of India’s move to deregulate the interest rate on savings bank accounts — the last bastion of administered rates. Banks benefit from low-cost savings deposits.

The country’s top bankers, including ICICI Bank [ Get Quote ] MD & CEO Chanda Kochhar [ Images ], State Bank of India [ Get Quote ] MD S K Bhattacharyya, HDFC Bank [ Get Quote ] MD Aditya Puri and Standard Chartered Bank Regional CEO for India & South Asia Neeraj Swaroop will meet with RBI Deputy Governor Subir Gokarn on Tuesday.

“Savings deposits are seen as a bank’s core deposits. They help us in asset-liability management. Most banks are of the view that it is too premature to deregulate the savings bank rate,” said another bank chief.


Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to

3 Responses so far | Have Your Say!