Though savings bank rate was deregulated in October 2011, for most big banks, the rate has not budged from 4%. This was the rate fixed by the Reserve Bank of India (RBI) prior to deregulation.
So, are banks working as a cartel to keep the rates static at that level? Dr C Rangarajan, former RBI governor and former chairman of the prime minister's economic advisory council, said that if this is the case, it would attract the attention of the Competition Commission of India (CCI).
"It is true that almost all banks, except for some private ones, have kept the savings rate at 4%. Strictly speaking, if this were to be treated as cartelisation, it would attract action from the CCI. However, on fixed deposits, there are more differences in interest rates," Dr Rangarajan said in an interview to dna.
RBI control over rates not eclipsed by MPC: Former RBI governor C Rangarajan
After keeping the savings bank rate fixed at 3.5% for more than eight years, the RBI, in May 2011, raised it to 4%. Then, after a few months, RBI deregulated the savings rate, thus allowing banks the freedom to take their own decisions on interest rates. This, however, has not kept the savings rate moving, particularly among bigger banks. So far, most big banks like State Bank of India, ICICI Bank, HDFC Bank, Punjab National Bank and Bank of Baroda have kept the rate static. It is only a few smaller banks like Yes Bank and Kotak Mahindra Bank which have increased rates to 6% as a move to mobilise deposits. In fact, Yes Bank had the highest savings bank rate at 7%, which was subsequently reduced to 6%.
About 90% savings account in banks is from the household sector. With inflation at 5.8%, the average rate of returns on these deposits are effectively negative. Despite this, the public parks money in these accounts, which, in turn, help banks lower their cost of funds and on current account deposits.
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