RBI frees savings interest rates

October 25th, 2011 - 6:19 pm ICT by IANS  

Mumbai, Oct 25 (IANS) Consumers are set to earn more on their savings accounts with the Reserve Bank of India (RBI) Tuesday deregulating interest rates.

“It is felt that the time is appropriate to move forward and complete the process of deregulation of rupee interest rates,” Governor Duvvuri Subbarao said during the second quarter review of the apex bank’s monetary policy for this fiscal.

For deposits up to Rs.1 lakh and irrespective of the amount in the account within this limit, a bank will have to offer a uniform interest rate.

For savings bank deposits over Rs.1 lakh, a bank may provide differential rates of interest, if it chooses to do so.

“However, there should not be any discrimination from customer to customer on interest rates for similar amounts of deposits,” said the RBI governor.

The central bank will separately issue working guidelines on deregulation.

Calling the step as an important policy initiative, Bank of Baroda chairman and managing director M.D. Mallya said there were a couple of conditions that the banks had to follow.

“Of course, couple of conditions have also been made, like it should not be discriminatory and the bank has to offer one rate of interest for all fixed deposit (FD) accounts upto Rs.1 lakh and may be beyond Rs.1 lakh,” Mallya said at a press conference here.

Mallya added that the RBI had also given guidelines to banks that they could have different rates for FD for deregulated segments.

Industry lobby Federation of Indian Chambers of Commerce and Industry (FICCI) welcomed the step by the apex bank and said that this would lead to more bank product innovation.

“Deregulation of savings bank deposit rate is a welcome move and it is likely to lead to increased product innovations across banks through more competition,” FICCI said in a statement.

FICCI also pointed out that the effects of the move on smaller banks’ capacity to compete with larger lenders needs to be monitored.

“On the flip side, however, it remains to be seen whether the smaller banks are able to effectively compete in the market with larger banks after this move,” the statement added.

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