Banks gear to hike savings rates; but still wait and watch

29 Oct 2011

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With the Reserve Bank of India springing a bit of a Diwali surprise by decontrolling interest on savings bank (SB) accounts, commercial banks have started moving towards raising the interest on SB deposits, if only to keep up with the competition.

State Bank of India, the country's largest lender, indicated on Friday that it might increase the interest rate on SB accounts by up to 125 basis points or 1.25 per cent. ''On average, we are expecting 100-125 basis points increase in the funding cost of savings bank (accounts),'' SBI chairman Pratip Chaudhuri told a TV channel.

He however added, ''We would not be the first mover.''

Another government-run lender, IDBI Bank, also indicated on Friday that it may increase the savings deposit rate; but is again adopting a wait-and-watch policy.

''The bank is considering some increase. But we will like to see what large banks do,'' said its executive director R K Bansal.

When asked about the impact of RBI decision on savings bank rate deregulation, SBI's Chaudhuri said, ''I think that's (rise in interest rates in SB interest) going to be inevitable. We are prepared for some pressure on the cost of savings bank funding.''

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