I read with interest the debate “Should the savings bank rate be deregulated?” (May 11). The views expressed by the CEOs of two leading private banks were on expected lines. HDFC Bank is a big private bank and it will gain from a low savings rate. On the other hand, Yes Bank is growing and will prime itself to attract low-cost current account and savings account (CASA) through an attractive savings bank rate in a deregulated regime.
The Reserve Bank of India recently raised the savings rate by 50 basis points — the first increase in eight years. Was this enough for the banks to try to bury talk of savings rate deregulation? Yet these banks change deposit rates and borrowing rates with alarming frequency. Term deposit rates were deregulated in 1997 – again, a move banks opposed – and the experience has been positive for the banking sector. Mind you, term deposits constitute 60 per cent of deposits while savings deposits account for 22 per cent of deposits, according to data in Business Standard (May 4). So, the banks have a habit of protesting against any move that requires deregulation on the liability side. But they love it when they can do whatever they want on the asset side (which includes taking hair-cuts on loans to their favourite businessmen and raising interest rates).
I found Aditya Puri’s reasons against deregulation trivial. He was trying to warn readers of higher costs through other means that will more than compensate for the increase in interest through deregulation. Further, there was the usual threat of a savings rate increase leading to an increase in the interest rate for borrowers. Thus, he was trying to say for customers, it wouldn’t really matter either way. That is really not the case.
CASA is the cheapest source of funds for any bank and will continue to be so even in the deregulated environment. Mr Puri may also be aware that all the banks have been levying various charges on savings account holders (debit card, demand drafts, or at par cheque books, on cash deposit at a non-base branch, signature verification charges and so on). They also have specified minimum balances, limitations on use of services and facilities (usage of other banks’ ATMs, cheque books issued, cash transactions through branches, cash withdrawn every day) and so on. Also, private banks lack a system of giving passbooks to account holders. They cannot say they are bestowing special favours on savings account holders. In fact, the quality of service has fallen to abysmal levels in the sector. The banks and the banking ombudsmen have been flooded with complaints from agitated customers. So much for Mr Puri’s emphasis on the need to increase fees to keep up with savings account services. In fact, many smallish banks – like Yes Bank – will gleefully take in those savings account holders who are dissatisfied with the raw deal from large banks. Let the banks compete in an environment where there are no crutches. I agree with all the reasons Rana Kapoor of Yes Bank gives in favour of deregulation.
Ankur Pathak, Gujarat
