Many banks may take fee hit than raise savings rate

The savings bank rate war may not have unfolded yet, but many of banks are willing to take the less painful approach of taking a hit on their fee income than hike interest payments.
The upshot: reduced net interest margins or NIMs are round the corner.

NIM is the difference between interest earned and interest paid, measured as a percentage of a bank’s assets.
Bankers believe unshackled savings rate will lead to a flood of better products for savings account holders in the coming months as banks try to retain existing customers.

While Yes Bank and Kotak Mahindra Bank hiked their savings rates from 4% to 6% the moment the Reserve Bank of India freed savings rate, others are chary.

“We are not looking at increasing the savings bank deposit rate at least in the near term. There are two options — pay higher interest rates to all customers or take a slight hit on fee-based income by offering a few services that are not charged. We prefer the latter,” said N Seshadri, executive director, Bank of India.

Many lenders are keen to take the discussion away from interest rates and goad clients to look at the benefits they can get.
“The rates would depend on where the market settles. Somewhat independently of that, we would like to differentiate ourselves in the market place and the best way to do that is by introducing products that are specific to some segments of the population,” said Jairam Sridharan, senior vice president, head consumer lending and payments at Axis Bank.

Analysts, however, believe that this is a natural response to the deregulation.

“If you are not offering higher rates, then it is imperative you offer some exclusive services. That is going to be the way. Most banks will generally waive off certain fees over services until they raise rates,” an analyst with a local brokerage said. He did not wish to be named.

Fee income constitutes of various charges levied by a bank on its services, ranging from cheque book charges, demand draft charges, minimum balance charges and such. Certain bankers have already begun doling out benefits to some of their customers.

“We are giving concession of interest at 0.5% for any retail advance. This concession will be available to savings account holders from the defence and even government employees,” said Ram Sangapure, general manager (retail banking), Central Bank of India.

IDBI Bank and UCO Bank have already waived off processing fees on all their products. But the move came before the deregulation.
Analysts believe that it is only a matter of time before most mid-size public sector banks go in for a rate hike.