Friday, 13 April 2012

Deregulation of Interest Rate on Savings Bank Deposits

"A major component of the financial sector reform process pursued by India has been deregulation of a complex structure of deposit and lending interest rates. On the deposit side, the only interest rate that remained regulated was the savings deposit interest rate. Keeping in view progressive deregulation of interest rates, in the Second Quarter Review of Monetary Policy 2010-11, the RBI proposed that a discussion paper on ‘Deregulation of Savings Bank Deposit Interest Rate’ would be prepared.

"After carefully weighing the pros and cons of deregulation of savings bank deposit interest rate, effective 25 October 2011, the RBI deregulated savings bank account interest rates, wherein banks will have to keep a uniform rate of interest for savings accounts with deposits up to ` 1 lakh, while differential interest rates could be set for savings bank deposits over ` 1 lakh. The deregulation is expected to:

  1. improve the transmission of monetary policy
  2. enhance the attractiveness of savings accounts  
  3. encourage thrift behaviour in the economy by bringing the savings deposit rate in sync with the changing market conditions."

Reproduced from: Economic Survey 2012, Box 5.1, pg. 107.

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