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Bold Initiative  by State Bank of India - Rationalization of Deposit Rates

(Dated : 01/09/2011)


In the beginning of August, 2011 SBI took a bold step whereby the Deposit rates on maturities from 1 year to 10 year for deposits below Rs 1 crore has been fixed at 9.25%.  This has remained unnoticed / ignored by most of the banks / bankers. However, AllBankigSolution (A.B.S) views this as a bold step and   SBI has shown that it is truly a  leader.

The so called "Aam Adami" (common man) who has saved some money and wishes to get some safe return to beat the inflation is confused by different rates on deposits in different buckets.  With little knowledge about how interest rates are operated in the debt market, he frequently feels cheated by his Bank due to pre-mature penalties etc.  The high NIM (net interest margin) of Indian banks is also a drain on his pocket.

It was a great relief to see that SBI introduced a single rate for deposits above 1 year and pegged it at a reasonably good level of 9.25%.  A.B.S feel this to be a great initiative at this moment.  Although, strictly speaking, this too is like painting the whole picture with a single brush and with the same color.   Thus, SBI may not be able to continue the same for long time and may introduce a few more buckets.  However, we are sure the number of buckets will be limited as it is a good step towards rationalization.  We  hope this initiative will continue and may be even followed by other peer banks.

Let us compare as to how many buckets have been applicable for other peer banks for interest rates payable to customers in 1 year and above period. (as on 1st September, 2011).   A review of interest rates on the websites of the following peer banks indicates that some banks have fairly large number of buckets :

   (a) State Bank of India       : 1 bucket with flat 9.25%

   (b) Punjab National Bank   : 10 buckets with range of 9.00% to 9.50%

   (c) Bank of Baroda              :  4 buckets with range of 9.00% to 9.35%

   (d) Canara Bank                  :   3 buckets with range of  9.00% to 9.50%

Now question arises,  what are the basis for fixing such buckets.   All the above banks are  operting in the same economy and similar interest rate scenario.   Do banks really apply some mind while fixing such interest rate buckets ?  Should RBI not question as to the rationale for fixing such buckets or is it merely a formality and is on the whims of the management.   What is the role of ALCO in such matters?  Is really the perception of the top management in different banks is so much different that one Bank is comfortable with one bucket whereas another bank feels it is doing justice by making 10 buckets for the same period.

There is a strong need for pondering by the top management of various banks on such issues so that such rates are fixed not only on a rational basis but a man on the street is able to understand it easily and does not feel cheated for his loyalty to a particular bank.

Depositors are likely to grab this opportunity and align with the bank offering something like DoCoMo plan (remember the ad. by Ranbir Kapoor! ).  Best of Luck to the leader of the industry.


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