Kotak Bank to retain 6% interest on savings a/c

At a time when interest rates on deposits are declining, private sector lender Kotak Mahindra Bank has decided to maintain the interest rate on savings bank account at six per cent for balance above Rs 1 lakh and five per cent for balance less than Rs 1 lakh.

SAVING GRACE

• Will continue to offer 6% interest rate for savings above Rs 1 lakh
• Savings below Rs 1 lakh will earn 5% interest rate
• Savings rate was deregulated by RBI in October 2011
• Most banks still continue to offer 4% on savings account
• Other lenders such as YES Bank, IndusInd Bank, RBL Bank offer more than 4% on savings bank account

"One-year bank deposit rates have come down from nine per cent to 7.5 per cent and are expected to go down further. However, we have decided to keep giving six per cent for this year as a value proposition to the customer," said Uday Kotak, executive vice-chairman and managing director, Kotak Mahindra Bank. However, he accepted that keeping the savings account interest rate unchanged at a time when even the fixed deposit rates are hovering around 7.25-7.5 per cent for one year, will result in a significant cost to the bank's balance sheet. But, despite the cost, the lender is confident of maintaining its margins above the four per cent mark. At the end of the quarter ended December 2015, the net interest margin was at 4.7 per cent.

"The net interest margin has two components - first being the spread and there we will work on a lower margin. In the second component, which includes the pricing of risk, we will be very prudent and do it appropriately to see that margins are not squeezed," added Kotak.

Apart from this, the bank also believes that the increase in volumes will be able to cushion margins.

Kotak Mahindra and associates are significant shareholders in Business Standard Pvt Ltd