The Hindu Business Line : SB account holders wait for relief

Chennai April 15 Just before every credit policy announcement, there is always some speculation about a possible increase in savings bank interest rates.

Another policy is just a few days away and there is hope of slight relief in the offing for over 300 million savings bank (SB) account holders in the country. Currently, they get 3.5 per cent per annum for their money. These rates are a vestige of the administered interest rate regime. It's stayed that way for a while now, even as every other form of money has earned more for lenders.

Although the SB rates are at 3.5 per cent per annum, the actual yield is lower at about 2.8 per cent, given that banks pay interest on the lowest balance maintained by account holders between the 10th and last day of a month.

In a recent speech, Ms K.J. Udeshi, Chairperson, Banking Codes & Standards Board of India, questioned whether "in these days of electronic wizardry, it is necessary to continue to follow this methodology for the ease and convenience of banks at the cost of depositors?"

Professor Ashish Das, Indian Statistical Institute, New Delhi, in a recent paper on the subject, says, "This convenience of the banks cost the depositors about 0.7 per cent of their savings bank deposits." This, he says, amounts to about Rs 4,111 crore, based on savings bank deposit balances of about Rs 58,7215 crore.

He says that interest application frequency is also an area where depositors are presently getting a raw deal. Interest on savings bank deposits is computed on a monthly basis but it is finally credited into the savings bank account only after every quarter. If the interest application frequency were reduced, the yield would increase.

He recommends that banks follow the international practice of calculating interest on the daily balance. With computerisation in banks now fairly widespread (public sector banks had achieved about 80 per cent computerisation a year ago), that should not be too difficult to implement.

More Stories on : Fixed Deposits | Interest Rates

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Forex reserves have very high opportunity cost

Bonds remain weak ahead of Credit Policy

TMB hikes lending rate

Education loans: 80% goes for domestic courses

Banks target Rs 306 cr for agriculture in Nilgiris

Credit-deposit ratio hits a high of 74.13%

SB account holders wait for relief

PNB for more trading tie-ups