A bankers organisation today said the Reserve Bank of India's (RBI) proposal to deregulate interest rate on savings bank accounts, if implemented, will adversely impact the "stability" of the sector.
"If the deregulation comes, there can be a flight of deposits which will hurt banks' stability," Indian Banks Association's Chief Executive, K Ramakrishnan, told PTI.
"Bankers (have) told the RBI that this is a CASA (Current And Savings Account)-driven industry and such a move can affect banks (adversely)," he added.
Ramakrishnan said all banks were opposed to the move and "felt strongly" about its impact on their stability.
The RBI had invited chiefs of top banks for the customary pre-policy meeting before the second quarterly review of its monetary policy scheduled for November 2, during which bankers expressed their opinion.
Among the bankers who attended today's meeting at Mint Street were SBI CMD O P Bhatt, ICICI Chief Executive and MD Chanda Kochhar, Standard Chartered's India Head Neeraj Swaroop and HDFC Bank MD Aditya Puri.
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Last month, RBI Deputy Governor Usha Thorat had said deregulation of interest rate on savings accounts is on the central bank's radar and a working group will soon be set up to examine possibilities of the same.
At 3.5 per cent per annum, interest on savings accounts is the only regulated rate in the banking system currently.
CASA deposits are the cheapest ways of raising funds for lenders and banks fear that a flight of deposits to competition offering higher returns can affect their operations.
Ramakrishnan said a lower-than-expected credit growth in the first-half (H1 FY11) was also discussed at the meeting.
He said credit growth has been "slack" in H1 this fiscal as corporates have been raising money from other sources.
"We also analysed the credit and deposit growth situation today. It was found that credit offtake has been slack due to corporates moving away to other sources of funds, but they will soon seek funds from banks as they embark on expansions," Ramakrishnan said.
He said, however, the introduction of the base rate system -- interest, below which banks can't lend -- was not a reason for the slow credit offtake. Deposit-accretion has been "satisfactory" and in line with the RBI's target of achieving a 20 per cent growth, he added.
The meeting took place against the backdrop of 8.5 per cent inflation for August.
Taming inflation is high on RBI's priority-list, and it has increased its key lending and borrowing rates five times this year to curb consumer spending.