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Letters: Deposit rate cut

To make the economy more efficient, India has to move towards lower interest rates in both

Ramanath Nakhate  |  Mumbai 

With reference to “SBI cuts term deposit rates up to 50 bps” (May 1), these will apply to new deposits and renewals effective from April 29, 2017. The new interest rate is 6.25 per cent as against the existing 6.75 per cent for two years to less than three year term deposits and 6.25 per cent for different brackets from three to 10 years. The cascading effect will be felt shortly with other public, private and cooperative banks following in the footsteps of State Bank of India (SBI) and reducing interest on deposits. It may be recalled that depositors were getting nine-11 per cent interest on deposits with banks and post offices in 2014. The government introduced Senior Citizens Deposit Scheme in 2004, which fetched 9.30 per cent in 2015. The rate of interest on this scheme has gradually come down since the rates have been aligned to market rates, are based on yields on bonds. It is 8.40 per cent for the quarter from April to June, 2017.

Recently, Finance Minister Arun Jaitley observed we cannot have a situation where lending rates are going down but deposit rates remain high. To make the economy more efficient, India has to move towards lower interest rates in both. Further, whenever there is a cut in repo rate or hike in reverse repo rate, the Reserve Bank of India (RBI) governor and the FM have invariably asked the banks to extend the benefit to borrowers but never to depositors. The FM and the RBI governor may be considered right if the benefit of low lending rates is reflected in the cost of living. The borrowers, corporate, businessmen, and manufacturers etc. who pay much less interest on their borrowings compared to a decade ago, have never reduced the prices. Though the prices of pulses and vegetables have come down in the last three months, those of rice, wheat, milk, cloth etc. have gone up by 10-20 per cent. The government must do something to help everyone in keeping with its slogans of “sabka saath sabka vikas”.

Ramanath Nakhate Mumbai