Let banks fix their savings rates: RBI

Hyderabad The Reserve Bank today said it wants the lenders to fix their individual rates for savings deposits, as part of the financial sector reforms.

“Deregulation of the interest rates, including savings rates, is an important way forward for financial sector reforms. The base rate system that will come in to effect from July 1 is also an important reform step,” the RBI Governor D Subbarao said here today.

Currently, banks can fix their own interest rate on savings deposits only above Rs 2 lakh. Up to Rs 2 lakh, the rate is fixed by the RBI, which at present is 3.5 per cent and is being calculated on a daily basis now from April 1. Once freed from RBI control, banks can fix their own individual rates for savings deposits as well.

He said the apex bank is in favour of deregulation of the interest rates for the agriculture sector, Exim and savings accounts and the concerns expressed by banks on the issue should be debated. He further said deregulation will also help encourage more financial inclusion.

Replying to a query on the concerns expressed by some banks that deregulation will push up costs, he said the issue has to be debated in a larger perspective. “The issue has to be debated and even RBI and other banks are to be educated on this,” Subbarao said.

Yesterday, deputy governor KC Chakrabarty had said, “the apex bank is in favour of deregulating all interest rates, including the savings rate. We have initiated a debate in the last policy...The deduction is very clear, clear in favour of deregulating all interest rates, including savings banks. But the decision will be taken after adequate debate on it,” Chakrabarty had said.

However, bankers feel that any such move will lead to wide variation in the market. Chakrabarty had said, “this is a highly competitive market. Prices do not vary much. But what will be the rate, what customers will get, will depend on market conditions.” On inflation, Subbarao said the RBI will review the inflation targets at its next policy meeting on July 27.

“Earlier, we expected the inflation rate to come down to 5.5 per cent by March, 2011. We had projected this number in our earlier meeting. We will revisit that number in the July policy meeting,” Subbarao told reporters here earlier in the day today. He, however, said despite higher inflation, the growth numbers are quite encouraging and investment is picking up.