Banking sector - Impact of saving interest rate deregulation

Vidrum / 31 Oct 2011

Banks will now have now have to work harder to retain existing Savings Bank account holders and also to garner new accounts.
Savings Interest Rate Deregulation

One of the best gifts that the RBI gave individuals this Diwali is its move to deregulate the Savings interest rate. However, this is certainly not good news for bankers, as they will now have to work harder to retain existing Savings Bank (SB) account holders and also to garner new SB accounts. This will also have an impact on banks’ bottom lines.

The Savings interest rate deregulation is subject to the condition that each bank will offer a uniform interest rate on Savings Bank deposits up to Rs 1 lakh. Above this limit, banks may provide differential interest rates. However, there should not be any discrimination between customers on interest rates for similar deposit amounts.

In the table below, we have compiled a list of 14 banks, which together comprise the BSE Bankex, and analysed the impact of the deregulation on them. We have assumed that 60 per cent of the deposits will be above Rs 1 lakh, which will have new interest rates. As per the regulation, the remaining 40 per cent of deposits will have the existing 4% interest rate.

Name Of Bank        (Rs/Cr) Saving Deposits As On 31st March, 2011 Total Deposits Of The Bank As On 31st March, 2011 % Of Savings Deposits To Total Deposits PBT As Of 31st March, 2011 1% Increase In Interest  Rate (Outflow) % Impact On PBT 1.5% Increase In Interest  Rate (Outflow) % Impact On PBT 2% Increase In Interest  Rate (Outflow) % Impact On PBT
State Bank of India 409609 1255562 32.62 19910 2458 12.34 3686 18.52 4915 24.69
Bank of India 59149 299559 19.75 3505 355 10.13 532 15.19 710 20.25
Union Bank of India 44689 202400 22.08 2942 268 9.11 402 13.67 536 18.23
Punjab National Bank 93664 316232 29.62 6694 562 8.4 843 12.59 1124 16.79
Canara Bank 58617 293794 19.95 4898 352 7.18 528 10.77 703 14.36
Bank of Baroda 66096 311603 21.21 5896 397 6.73 595 10.09 793 13.45
HDFC Bank 63448 208287 30.46 5957 381 6.39 571 9.59 761 12.78
Federal Bank 9148 42988 21.28 872 55 6.3 82 9.44 110 12.59
ICICI Bank 73264 259106 28.28 8387 440 5.24 659 7.86 879 10.48
Axis Bank 40850 189166 21.59 5097 245 4.81 368 7.21 490 9.62
IDBI Bank 13936 180444 7.72 2301 84 3.63 125 5.45 167 7.27
IndusInd Bank 3059 34365 8.9 879 18 2.09 28 3.13 37 4.17
Kotak Mahindra Bank 3330 27313 12.19 2247 20 0.89 30 1.33 40 1.78
YES Bank 817 45939 1.78 1092 5 0.45 7 0.67 10 0.9
Total 939676 3666761 25.63 70678 5638 7.98 8457 11.97 11276 15.95

Based on this RBI guideline, Kotak Mahindra Bank and YES Bank made the first move by increasing their Savings interest rates. YES bank has increased its Savings interest rate for all Savings accounts by 200 basis points to 6%. Kotak Mahindra Bank will offer 6% on Savings deposits of more than Rs 1 lakh and 5.5% on deposits upto Rs 1 lakh.

PSU banks like the State Bank of India, Bank of India, Union Bank, etc. will be more strongly affected by this deregulation. Going further, the focus of the banks would be more on CA – Current Account deposits rather than the previous focus on CASA, which will help the banks to acquire low cost funds.

If you want to stay updated with the share market news today, keep a close watch on the indian stock market today with real time movements like sensex today live and overall stock market today trends. Investors tracking ipo allotment status, ipo news today, or the latest ipo india can also follow daily updates along with bse share price live data. Whether you are learning how to invest in stock market in india, preparing for a market crash today, or searching for the best stocks to buy in india, insights on top gainers today india, top losers today india, trending stocks india and long term stocks india help in making informed investment decisions.