Banks may raise several transaction and related charges.
First, the good news — your savings account will earn 50 basis points more, that is, four per cent annually with immediate effect. Now, the bad news — banks are looking to increase transaction costs to make up for the higher savings deposit rates.
“We have decided to increase the savings bank deposit interest rate from the present 3.5 per cent to four per cent with immediate effect,” said the Reserve Bank of India’s (RBI’s) Annual Monetary Policy Statement. This is a welcome step at a time when inflation is soaring and RBI is expecting it to taper only next year.
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But this may come at a price. Banks are already working on strategies to tackle this higher cost that they will have to incur to service the cash lying idle in your bank account. “This cost has to be passed on to customers. It may not be possible for banks to absorb it,” says K C Jani, executive director, IDBI Bank.
Bankers add that the increase in the savings rate will translate into a 12-15 basis points increase in total costs. According to analysts, the rise in cost will be Rs 5,500 crore.
Customers, as a consequence, will feel the pinch on some facilities soon. “Until now, we saw a lower rate and to maintain our Casa (current account-savings account), many free benefits were offered. But if we have to increase rates, freebies have to be cut or charged for,” says K V S Manian, group head-consumer banking, Kotak Mahindra Bank.
Bankers say costs are high on costs related to transactions over the internet, mobile and automated teller machine. But most banks absorbed these till now. These are the first that are likely to be hit.
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“Today, customers ask for all benefits whether or not he/she uses it or knows to use it. And, we have to provide as well as pay for it. If banks have to pay more to the customers, freebies will be cut down,” says another banker.
What has accentuated the problem is the change in the calculation of interest rates on savings accounts. Since April 2010, savings rates are calculated on a daily basis and this will further increase the cost for banks.
Some of the things that are being already considered are stopping of unlimited free cheque books, increasing the cost of making demand drafts, penalty on bouncing cheques and capping of amounts that can be deposited/withdrawn free of charge through cheques. There are a number of other smaller charges such as number of free withdrawals at the ATM and transactions through net banking, which may also be targeted.
The deregulation of interest rates, if implemented, is likely to lead to a completely differential charge structure. “Banks will have to charge transaction accounts more than savings accounts and also cap the number of free transactions or maybe even remove branch-level transactions. Electronic and ATM transactions may also fall under this ambit,” says S Govindan, general manager-personal banking and operations, Union Bank of India.
If you run a business and make frequent withdrawals and/or deposits, you may be in for higher costs. You will have to weigh your options before making any transaction or asking for any benefit.