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Rajesh Goyal, Executive Consultant,


I was thinking of reviewing the market response to RBI's bold decision of de-regulating SB interest rates only towards he end of the month so that PS Banks have been given sufficient time to make up their mind.  However, SBI's  eye-catching advertisement on 21st November, 2011,  and an email  received from one of our regular reader, Mr. M Perumal, from Chennai,  forced us to review the same immediately.

RBI had lighted its well kept secret bomb just a day before Diwali (i.e. on 25th October, 2011) by deregulating SB interest rates.   Although this  made the headlines next day, but its implications were not discussed in the public domain  properly.    CMDs of PS banks in their interviews in the following days, gave casual replies and were not ready to take  the first call.   It appears a hidden cartel of bigger banks, specially the PS banks,  is working and wants to ignore even this guidance by RBI that SB rates needs to be market related.  PS Banks had successfully done this, in case of  at least last two hike in Repo Rates,  when they  refused to revise their base rates or BPLR rates. 


A review of the last four weeks has indicated :-

  • Four private banks have increased SB rate of interest from 4.00% to 5.50% and 6.00%;

  • CMDs of most of the PS Banks have issued statements that there is no need to increase SB interest rates immediately and they will watch the market.  This means they were neither ready to take the lead nor were ready to realise the ground market conditions.  No body wants to take lead to align the rates according to market conditions.

  • PS Banks maintained at the beginning of the month that they are flush with liquidity and thus they are under no pressure to increase rate of interest of either SB or FDs.


We give below some of the recent views expressed by CMDs of major banks like SBI and PNB.  The recent policy decisions by top PS banks clearly indicates that they are trying to go against the market trend to protect their bottom lines.   Our Finance Minister, Planning Commission babus and political class has always insisted that PS Banks are pro-poor and thus can not be privatized.  I will like our Finance Minister, RBI top officials to take a review whether the following recent policy decisions are pro-poor or anti-poor and anti-middle class:-





All the above clearly shows that PS Banks are clearly not  PRO-POOR, BUT ARE TRYING TO SQUEEZE THE POOR TO MAXIMUM EXTENT BY OFFERING them lower interests rate on SB accounts as well as FD accounts when compared with the RICH people.  Moreover, these banks offer CORPORATE BORROWERS LOWEST RATE OF INTEREST (at base rate or near the base rate) ON LOANS RAISED FROM PS BANKS  and when in trouble they are given the best re-structuring packages, like we will soon see in case of KINGFISHER. 


GOI, RBI  and PS Banks should now stop professing that they are Pro Poor as they have now been fully exposed.   PS banks are in no hurry to raise the SB interest rates as it will expose the bottom lines and NIM which are undoubtedly very high for a country like India. 

The short-sightedness of the top management of these banks has been exposed once again.   CMDs of PS Banks, who were issuing statements in the first week of November, 2011,  that PS banks are surplus liquidity and they need not increase interest rates on deposits,  have suddenly found that liquidity has disappeared.  On 21st November, the call money rates have touched 8.75% i.e. above the Repo rates.  Banks borrowed Rs 1.27 trillion from the central bank's liquidity adjustment facility window on Monday (21st November), compared with 1.07 trillion rupees on Friday, both well above Rs 495.25 billion at the end of the first week of November.


PS Banks needs to understand the market trends and if ignored any longer will result in permanent shifting of SB funds at least in cities.  Once such customers have  tasted good customer service at these private sector banks, they will never return back to PS banks even if the interest rates are revised upwards.   PS banks needs to act before it is too late.



What Are the Views of Top Men of PS Banks :

On 9th November, 2011 SBI CMD Pratip Chaudhuri, was quoted as saying "There is not much adverse movement in the savings bank (SB) balances in the last one month. As of now, we have no plans to tinker with the SB interest rates,"   Chaudhuri also said those banks which have raised savings deposit rates lack reach.  He also maintained that the public sector lender is also in the process of shedding its bulk deposit portfolio in order to maintain the margin. (IBN Live)

Similarly, the reports on 3rd November, 2011also indicated that Indian Overseas Bank too said that while it is certain that interest rates on SB accounts will go up, it would however wait for some time before taking a call.  Similarly, the Punjab National Bank said it would take a view after seeing market trends.

The reports dated 5th November, 2011 indicated that bigger banks, both government-owned and private banks, are not in a big hurry to hike interest offered on savings bank accounts post deregulation of rates by the Reserve Bank of India (RBI).  “We are watching the market. We are not in a hurry to take any decision,” said KR Kamath, CMD, Punjab National Bank.  Banks have chosen to wait and watch how this change affects the banking sector and if customers shift base to banks offering higher interest