Dear Comrades,
Triggering
a potential deposit war among banks, the Reserve Bank of India on
Friday gave commercial banks the option of paying interest on savings
and term deposits at intervals less than three months. The RBI move,
announced in a notification, is expected to make banks woo depositors
more aggressively with a little extra interest payment.
Interest calculated with shorter periodicity will yield a little higher
sum in absolute term for savings account and term deposit holders. Public
deposits traditionally are the cheapest source of funds for lenders,
which have been struggling to raise money from common people. Bank
deposits grew 15.45% year-on-year to around Rs 74-lakh crore for the
fortnight ended November 16.
RBI Governor Raghuram Rajan, however, had said he is not happy with the
deposit growth. "The most recent numbers have FCNR-B (foreign currency
non-resident—bank deposits) in it. I would like to see deposits growth,
especially CASA (current and saving account)," he had said.
Increasing the frequency of interest payment — mentioned in the central
bank's second quarter monetary policy in October — may put margin
pressure on banks. Lenders have already been facing strains on their
interest rate margins as they are compelled to pay high rates to
depositors, while the government has directed them to lower lending
rates.
"Monthly interest payment on deposits will raise costs marginally, but
it will help banks to woo customers with a little extra payment without
raising deposit rates," KR Kamath, chairman and managing director at
Punjab National Bank, had said at the time of the credit policy.
Currently, banks
calculate interest on a quarterly basis for deposits. Some of them do
make monthly payment, but they pay a little less after discounting their
losses for early payment. For example, if quarterly interest is Rs 300,
they do not pay Rs 100 a month to depositors for three months. They pay
a little less on monthly basis.
Economic Times of India