Banks to bear burden of additional interest outgo
Moneylife Digital Team 31 March 2010

The central bank’s directive to calculate interest rate on savings deposits on a daily basis is likely to dent a big hole in bankers’ books

One of the leading public sector banks has told Moneylife that under the new system, its interest outgo would increase by Rs250 crore in the coming year. Considering that one bank alone will cough up so much funds, we estimate that the top seven banks (by aggregate deposits) are likely to pay out in excess of Rs2,500 crore-Rs3,000 crore as additional interest into the accounts of savings account holders next year.

From 1 April 2010, savings account holders will benefit from the new rules on calculation of interest rates on their deposits. However, banks will end up feeling the pinch under the new system. With banks shifting to a completely new method for calculating the interest rates, it is estimated that the cost of funds for them will go up by at least 30%-40%.

No wonder then, that some banks are apparently lobbying hard to effect a reduction in the rate of interest on such deposits from the current 3.5% to 2.5%. However, sources tell us that it is unlikely that the RBI will take such a step.
Some banks had even suggested that interest on the savings account may be calculated on the minimum balance in the account from the first to the last day of each month.

When the RBI had referred the proposal to implement the new system to the Indian Banks’ Association (IBA), it had met with stiff opposition from many bankers. Then, they were of the view that it would be feasible only when the computerisation of banks is completed. However, in its quarterly monetary policy review last year, RBI directed the banks to implement the new method of calculation from 1 April 2010.

At present, the interest rate on savings accounts is calculated on the minimum balance held from the 10th day to the last day of each month. Savings deposits currently yield an interest rate of 3.5% which is credited to the account on a half-yearly basis.

Comments
rahul jain ranchi
1 decade ago
@ srinivas - i guess the interest will be credited either quarterly or even half yearly. it will be too tedious to evaluate the interest that need to be credited daily as becaues still all branches are not computerized. they will give a report and then interest will be credited in the accounts.
its mine view i dont know about real scene whats going to happen
rahul jain ranchi
1 decade ago
this move though is a pinch o the banks earning but have a positive impact on the depositors. they will fairly get there reward for the money they have parted with for even a day.
i will say a good move by the RBI keeping depositors in view.
Srinivas
1 decade ago
Could you please let me know the interest will be credited daily or by month end.

Thanks
Srinivas
Kannan
1 decade ago
If the amount to be lost is Rs.2500 to 3000 crores per annum, imagine the amount of customer's money the banks must have usurped over the past so many years. And we call private moneylenders "usurious"!
jayendra ambelkar
1 decade ago
thanks to RBI
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