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Private sector lender IndusInd Bank has become the first bank to reduce the interest rate on savings bank accounts, after it was deregulated by the Reserve Bank of India (RBI) in 2011. The lender was also among the few banks which started offering more on savings account when rates were freed.
IndusInd has cut the interest rate on savings account to 4.5 per cent per annum against 5.5 per cent per annum earlier for daily balance less than Rs 1 lakh. The reduction in interest rate came into effect from September 1. The bank has however maintained the rate of 6 per cent per annum for daily balance equal to or greater than Rs 1 lakh. All the public sector banks and all large private banks offer four per cent on savings bank deposits.
IndusInd bank could not be reached for comment.
The bank had raised the rate in October 2011 following deregulation of the savings bank interest rate. Some other banks like YES Bank and Kotak Mahindra Bank had also hiked the rate following the deregulation.
YES Bank continues to offer an interest rate of 7 per cent per annum on savings bank account balance of Rs 1 lakh and above while it offers 6 per cent per annum for balance below Rs 1 lakh. Kotak Mahindra Bank, on the other hand, offers 6 per cent interest per annum on savings account balance over Rs 1 lakh and 5.5 per cent per annum on balance up to Rs 1 lakh.
After the hike in interest rate on savings deposit, these banks had recorded impressive growth in their savings deposits. In fact, another private sector lender, Lakshmi Vilas Bank, has recently increased its savings bank interest rate to five per cent for accounts with a balance of Rs 1 lakh and above.
Banking analysts believe it is not easy to make money by offering a higher rate on the savings accounts. "The reason why despite the deregulation several banks have not increased the rate is because the economics don't always work out and that is why several banks have stayed away from increasing the rate," said an analyst.
