The Hindu Business Line : Banks to give more on SB accounts

Hyderabad/ Bangalore, April 21 If you have a salary account/savings bank account in a bank, it is better if you withdraw money as per your requirements instead of at one go. From next April, the balance in your savings account will earn interest on a daily basis, following the Reserve Bank of India’s decision to implement new interest calculation methods on such accounts.

The payment of interest on SB accounts (3.5 per cent at present) would be calculated on a daily product basis with effect from April 1, 2010. For Rs 1,000, you will get an annual interest of Rs 35 which will be divided into per day interest to be credited to one’s account.

“This benefits the customers in a significant way as daily interest will automatically be calculated by core banking system and will get credited to the customers’ accounts. To that extent, it would hit banks financially,” Ms Renu Challu, Managing Director, State Bank of Hyderabad, told Business Line.

At present, banks calculate interest on SB accounts on the minimum balances held during the period from the 10th day to the last day of each calendar month. This means that one would end up either in not getting the interest for money kept from 1st to 10th or only on the minimum balance maintained during the last 20 days of the month.

The new method would be beneficial to the salaried class from the corporate and public sector and pensioners (with accounts in public sector banks), said an economist with a large public sector bank.

Interest on daily basis is expected to bother especially private banks which operate large corporate accounts.

“Generally, most of the middle-class salary/SB account holders are now getting interest on minimum balance as reflected in the account on the last day of the month. The accounts of IT professionals and others tend to show considerable balances in the first two weeks on which we will now have to pay interest,” a senior official of ICICI Bank, who did not want to be identified, said.

Some bankers, however, feel that the higher cost effects are likely to be offset, as most banks align their short term deposits — 15 days, 30 days and 46 days — to the SB rate of 3.5 per cent. For banks, this may also mean that the chase for more current and savings account (CASA) is over. This could imply a switch back to traditional term deposits. Another repercussion may be on money market funds which were also offering slightly higher rates than SB rates. These funds are likely to take a hit.

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