Banks say they have no objection to savings rate deregulation, but they believe the timing could be better as the prevailing monetary situation is not conducive to it, said a top banker.
"It is fine to have savings rate deregulation and banks are not opposed to it - they only feel the present time is not ripe for such a move. If it is introduced in a tight money situation as is prevailing now, then it would lead to chaos," HDFC Bank Managing Director Aditya Puri told PTI here.
Today, several services are bundled together with a savings account and offered free to customers such as ATM services and account statements. In a deregulated scenario, banks might be forced to charge customers for these services.
Banks also need to be given the freedom to fix their own charges as the cost of servicing a savings account will increase, he said. "We will (then) have to ensure that services are offered at a fair value to customers."
Presently, interest rate on savings accounts is 3.5% per annum. Reserve Bank has, in the past, floated the idea of deregulating the savings rate, but the idea has reportedly run into stiff opposition from banks.
Once the savings rate is deregulated, lenders will be free to fix their own rates and "this could lead to unhealthy competition between them," Puri said.
"Besides, it would make deposits volatile, reducing banks' ability to fund term projects even further," he said, adding "customers, too, would have to maintain a higher balance in their accounts."
Banks have communicated their reservations to RBI over savings rate deregulation in the current scenario, he said.
