Savings rate deregulation may push up costs for a/c holders

Bank account holders' cheers after the RBI hiked the rates on saving accounts could be short-lived, as the banks are likely to make them pay for a slew of services to offset the costs, bankers and analysts have said.

Earlier, the regulated interest rate of 3.5% per annum -- unchanged since 1993 -- helped banks garner low- cost deposits and maintain good margins, due to which many services came free.

But, with last week's RBI action to hike the rate to 4% and its articulated bias toward deregulation -- which would push up the rates further -- in a discussion paper posted for comments, there is a high likelihood of customers being asked to pay "transaction charges", bankers said.

"The transaction charges will go up for the consumers if the rates on savings bank accounts keep on going up... The banks also have to survive," HDFC Bank Managing Director Aditya Puri said.

Among various actions which banks could take will be charges for non-maintenance of minimum balance, raising the minimum balance requirement, an increase in cheque issue charges and a limit on the number of free transactions, ratings agency Crisil said in a note.

Fearing that competition for low-cost savings deposits will drive up the rates and affect margins, a majority of lenders have voiced reservations about deregulation till now.

"The pressure on net interest margins is likely to further increase if the RBI deregulates savings account deposit rates," Crisil said.

Central Bank of India Chairman and Managing Director S Sridhar told PTI that deregulating the savings bank interest rate is "premature" as lenders need higher margins to make up for "inefficiencies" in the system.

Elaborating, Sridhar said banks have spent a lot on technology in recent years and need to recover the cost.

Besides, they also have to allocate money toward mandatory requirements such as financial inclusion and opening branches in rural areas, among others, he said.

"Levying of transaction charges is a trade-off," he said, drawing attention to banking operations in the developed world, where every service is charged.

"If you go to any foreign country, banking is so costly... Banking is expensive. Try getting a cheque book in a foreign bank," he said.