Bank on rural reach; say loyal customers won’t shift for a little more interest.
If you thought your neighbourhood bank branch would offer more for your idle savings bank deposits after the recent deregulation, you may be disappointed.
Public sector banks, which control more than 70 per cent of the total banking deposits, are in no mood to raise interest rates as they are convinced their ‘loyal’ customers would not desert them for a ‘few basis points’ more. They are also wary of an increase in the cost of funds, which would put pressure on their net interest margins.
| UNAFFORDABLE? | |||
| Bank | Savings deposits* | Additional burden*# | Estimated % profit fall# |
| State Bank of India | 4,09,609 | 4,096 | 20.57 |
| Punjab National Bank | 93,664 | 937 | 13.99 |
| Bank of Baroda | 66,096 | 661 | 11.21 |
| Canara Bank | 58,617 | 586 | 11.97 |
| Union Bank of India | 44,689 | 447 | 15.19 |
| * in Rs cr ; # if the rate is raised by 1%; deposits as on March 31 Source: SMC Global | |||
State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, UCO Bank, Indian Overseas Bank, Syndicate Bank, Indian Bank, Dena Bank and Bank of Maharashtra are some of the public sector banks to have told Business Standard they don’t have any immediate plans to raise the savings bank deposit rate.
SBI, after setting up a committee to review the rate, has decided to refrain from increasing it for the time being.
“Public sector banks are not in a hurry to raise rates because the savings deposit balance remains stable. We don't expect migration of customers in numbers because of a difference in rates. A few customers in metros may switch banks but we have many branches in rural areas, where no other bank is present,” said A Krishna Kumar, managing director, State Bank of India.
The second largest lender, Punjab National Bank, also made it clear it was not in a hurry to review the rate. “The RBI has recently deregulated the savings bank rate. We are waiting and watching what is happening in the market. We are not in a hurry to review the rate,” said chairman and managing director K R Kamath.
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According to RBI data, savings deposits are held largely by households. Savings deposits constitute about 22 per cent of total deposits of scheduled commercial banks and about 13 per cent of financial savings of the household sector.
Following the deregulation of the savings bank deposit rate last month, a few small private sector banks, YES Bank, IndusInd Bank, Kotak Mahindra Bank and Ratnakar Bank, immediately hiked the rate to boost their low-cost deposit franchise. Current account and savings account (Casa) deposits constitute the low-cost deposit base of banks. Banks with a higher Casa enjoy a relatively low cost of deposits.
Other than those having raised the rate, banks offer four per cent on savings bank deposits. A rate hike would put pressure on the costs and hence margins.
“Our view is four per cent is the optimum level because of the cost of maintaining these accounts. Our asset-liability committee feels this is not the right time to raise the rate. Once interest rates on term deposits start coming down, it will be the right time to jack up the savings deposit rate,” said T M Bhasin, chairman and managing director, Indian Bank.
Bankers said till the time fixed-deposit rates moderated, they may not hike the savings bank rate. “We have no plans to increase the rate. We will wait and watch the market. We will prefer term-deposit rates to moderate first. The current rate of four per cent is fairly attractive,” said M Narendra, CMD, Indian Overseas Bank.
Government lenders are also banking on their long-standing customer relationships as a cushion.
“Customers in this segment are less rate sensitive. Many have relationships with us for decades. For a few basis points, they will not abandon us,” said M G Sanghvi, executive director, Bank of Maharashtra.
Bankers said savings deposit accounts were used mostly for transactional purposes, not for saving funds. So, customers may not be willing to move from one bank to another. “Customers may have issued post-dated cheques or have ECS on savings accounts. No-one is going to take the trouble of shifting all these services from one bank to another,” said a senior executive from a public sector bank.