RBI seeks feedback on savings deposit rate deregulationApril 28th, 2011 - 9:51 pm ICT by IANS
Mumbai, April 28 (IANS) The Reserve Bank of India (RBI) Thursday issued a discussion paper seeking feedback from various stakeholders on proposed deregulation of interest rates on savings bank deposits.
During its monetary policy review in November last year, the central bank had proposed to free interest rates on savings bank deposits in line with other deposits.
While interest rates on other deposits, especially term deposits, keep changing very frequently depending on the market conditions, the rates on savings bank deposits has remained unchanged at 3.5 percent per annum since March 1, 2003.
“The discussion paper is an attempt to deal with pros and cons of deregulating savings deposit interest rate and take on board the suggestions of various stakeholders for either maintaining the status quo or deregulating the savings deposit interest rate,” the RBI said in its draft discussion paper.
A savings bank deposit is a hybrid product which combines the features of both a current account and a term deposit account. It provides the convenience of easy withdrawals, writing/collection of cheques and other payment facilities as well as an avenue for parking short-term funds which earn interest.
Deregulation will make the interest rates on savings deposit flexible along with other interest rates depending on the market conditions. The RBI deregulated the interest rates on term deposits in 1997.
The central bank has invited stakeholders views by May 20, 2011 on the following issues:
- Should savings deposit interest rate be deregulated at this point of time?
- Should savings deposit interest rate be deregulated completely or in a phased manner, subject to a minimum floor for some time?
- How can the concerns with regard to savers (senior citizens, pensioners, small savers, particularly in rural and semi-urban areas) be addressed in case savings deposit interest rate is deregulated?
- How serious are concerns relating to a possible intense competition amongst banks and asset-liability mismatches if savings deposit interest rate is deregulated?
- Should higher interest rate be paid on savings deposits without a cheque book facility?
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