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Your savings account likely to earn more

Last updated on: April 28, 2011 08:08 IST

Your savings account likely to earn more

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Manojit Saha in Mumbai

At a time when rising prices are fast depleting the value of money, there may be some good news for millions of savers.

The savings bank rate, one of the few to be still administered, may be raised, as banks have opposed the move to deregulate it for the time being.

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Image: Savings to earn more.

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Your savings account likely to earn more

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RBI has been in talks with banks to increase the rate, now 3.5 per cent, by 50-100 basis points (bps).

Bankers involved with the discussions said this might be the first step towards deregulating the rate.

"Bankers do not want deregulation of the savings bank rate as it can push up (deposit) rates. The option for the central bank is to increase the rate," said an executive of a public sector bank. "A 50-100 bps increase is what we are ready to accept."

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Image: RBI has been in talks with banks to increase the rate.

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Your savings account likely to earn more

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RBI would come out with a discussion paper on deregulation of the savings bank rate, Governor D Subbarao said recently. Banks oppose deregulation as they feel it will increase instability.

Bankers said RBI was studying the rates offered by different countries on savings deposits. In India, a savings bank account holder gets facilities such as a cheque book, unlike in most developing countries.

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Image: RBI Governor D Subbarao.

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The move comes against the backdrop of high inflation. Wholesale price-based inflation stayed above eight per cent in 2010-11.

Since fixed deposit rates offered by most banks during the first half of the financial year were less than eight per cent, the real return to depositors was negative.

RBI has already mandated that the rate on savings deposits is to be calculated on a daily basis from April 1, 2010.

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Image: RBI has already mandated that the rate on savings deposits is to be calculated on a daily basis.

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These low-cost deposits grew 26.9 per cent in 2009-10, while term deposits saw 13.1 per cent growth. In 2009-10, they contributed 34 per cent to the total incremental increase in deposits.

While a higher rate will help banks mobilise more low-cost deposits, it will increase the cost of deposits.


Image: A higher rate will help banks mobilise more low-cost deposits.

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