RBI to set up panel on savings rate deregulation: Usha Thorat

The Reserve Bank is in the process of setting up a working group to look into the issue of deregulating interest rates on savings accounts and suggest suitable measures.

The RBI is deliberating on the deregulation of savings bank interest rate that is currently pegged at 3.5 per cent, Usha Thorat, deputy governor of the RBI, said today.

At 3.5 per cent, savings rates should be the least attractive among all deposit rates, she said while delivering the key note address at the panel session on `Setting new paradigm in regulation.'

"Given the level of interest rates on bank deposits, common persons are lured by higher interest provided by alternate channels, especially in the informal markets," said Thorat.

While the low-cost savings accounts provide banks with low-cost funds of an enduring nature, which facilitate asset-liability management (ALM) and help lower lending rates, she said, the costs not currently recovered in handling such accounts have to be considered as well.

However, she said, an across-the-board liberalisation of savings rates could, in situations where there is virtual monopoly of banking, may lead to lowering rates in some areas while leading to increases in other areas. This may result in discrimination between different customers of the same bank, she added.