Money & Banking

RBI to float discussion paper on deregulating savings interest

| | Updated on: Feb 24, 2011

The Reserve Bank said on Thursday it will come out with a discussion paper on deregulation of interest rates on savings account.

“There is a view that we should deregulate the interest rate on savings bank accounts too. We are examining the pros and cons of doing that and will shortly put out a Discussion Paper for eliciting feedback,” RBI Governor, Dr D Subbarao said at the Convocation function of Sambalpur University.

At present, RBI only monitors interest rates on NRI deposits and on savings bank accounts, while interest rates both to savers and borrowers now work on the market principle of competition among banks.

“Regulation has both costs and benefits. excessive or inappropriate regulation increases intermediation cost, impedes efficiency and stifles innovation...,” Dr Subbarao said.

Currently, banks pay 3.5 per cent on savings deposit.

While the RBI as part of the economic reforms programme deregulated fixed deposit rates, it had not freed the rates which banks pay on savings deposit.

While banks adjust fixed deposit rates keeping in view their asset liability position, they pay 3.5 per cent on savings bank as mandated by the Reserve Bank.

Published on February 24, 2011

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