Assocham calls for deregulating saving bank interest rates

April 11, 2011 : To induce competition and benefit a large number of savings account holders. Assocham has called for deregulating saving bank interest rates.

As the country pursues high growth strategy while braving pains of high inflation, a large savings community is currently facing severe negative returns from bank deposits. In an open and transparent system, it is discomforting for the banks to derive benefit for prosperous corporates and be an organised class for further shifting away wealth from the majority of savings community, said The Associated Chambers of Commerce and Industry of India (Assocham).

The Reserve Bank of India (RBI) recently advised banks to reduce the cost of intermediation by increasing deposit rates and reducing lending rates. This could be a major corporate social responsibility initiative by banks, said the chamber.

A substantial portion of Rs 53 lakh crore worth of deposits with Indian banks are in saving accounts. At the same time, bank advances total Rs 41 lakh crore, showing a deposit-credit ratio of 73 per cent. Corporates and banks can afford to absorb a part of this to improve the return for this set of depositors, it said.

“Let there be a competitive environment where cost reduction determines the capability, and not regulated interest getting access to low-cost funds,” said an ASSOCHAM spokesperson.

The chamber has also called for making RBI’s main, short-term repurchase (repo) or lending rate as the single policy rate to improve monetary policy transmission. This will align the Indian monetary system with international best practices and swifter transmission of monetary policy instances.

“We agree that the repo rate should be a single policy rate to unambiguously signal monetary policy stance to achieve macro-economic objectives of growth with price stability,” said the spokesperson. “This will bring more effectiveness and transparency in the banking system.”

About 40 per cent of people in the country have access to banking services. This reflects that increasing penetration in un-banked areas is a key challenge for policy makers.

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