The difference between NBFC and Banks are the offerings like savings and current account and other special services which only banks are allowed. In some time, RBI would be awarding banking license to these NBFC also.
The interest rates offered by these banks on saving account are a matter of great concern. Some year’s back I remember Kotak bank offered higher interest rate on idle cash in your savings account. Now 30% of their customers have switched to this facility and they are managing around 44% of their retail deposits through this scheme now.
Now RBI is soon going to be discussing and publishing a paper on deregulation of interest rate on savings account. While SBI chief is being sounded cautious in the speech where he is clearly against deregulation of interest rate. What I think is this will result in good competition...I have always recommended expansion of market. This could be a new pitch for the existing and new coming banks to play on. While this could be detrimental to the existing banks like SBI and other nationalized banks. I hope this brings some level playing among all the new banks and NBFC.
All these years these banks have been regulating the savings accounts by offering miniscule interest rate and offering loans at much higher interest to other customers. Last year, in April 2010, RBI mandated daily calculation of interest instead of 10-days average savings account balance. Further, with the deregulation of interest rate it would result in good competition among banks to offer better rates to the depositors. Of course this would hurt the bank prospects in terms of cost of capital and their margins would squeeze a little to lot. But I think this would make them more proactive. They would start taking risks. Is it for good or bad? What do you think? Seriously I think, the Indian banks were saved from the turmoil the whole world was suffering from because of the lack of pro activeness of our bank employees.
What do you think? Deregulation of savings banks will be good or bad. Tell us your views through the comment section.
The interest rates offered by these banks on saving account are a matter of great concern. Some year’s back I remember Kotak bank offered higher interest rate on idle cash in your savings account. Now 30% of their customers have switched to this facility and they are managing around 44% of their retail deposits through this scheme now.
Now RBI is soon going to be discussing and publishing a paper on deregulation of interest rate on savings account. While SBI chief is being sounded cautious in the speech where he is clearly against deregulation of interest rate. What I think is this will result in good competition...I have always recommended expansion of market. This could be a new pitch for the existing and new coming banks to play on. While this could be detrimental to the existing banks like SBI and other nationalized banks. I hope this brings some level playing among all the new banks and NBFC.
All these years these banks have been regulating the savings accounts by offering miniscule interest rate and offering loans at much higher interest to other customers. Last year, in April 2010, RBI mandated daily calculation of interest instead of 10-days average savings account balance. Further, with the deregulation of interest rate it would result in good competition among banks to offer better rates to the depositors. Of course this would hurt the bank prospects in terms of cost of capital and their margins would squeeze a little to lot. But I think this would make them more proactive. They would start taking risks. Is it for good or bad? What do you think? Seriously I think, the Indian banks were saved from the turmoil the whole world was suffering from because of the lack of pro activeness of our bank employees.
What do you think? Deregulation of savings banks will be good or bad. Tell us your views through the comment section.
Nice post...in order to make it a level playing field the steps needs to be taken and RBI i feel is moving towards it..
ReplyDeleteBut won't it discourage people to invest in market, taking risks?
ReplyDeleteHi Ashish, Thanks for the comment, I think this would affect the markets as people would be willing to get less secured returns, but I think this would be compensated by banks taking risks on their behalf. Currently banks are not allowed to invest in stock markets, but they can give loans to companies by offering more than normal interest rates. With extra liquidity in savings account, they would be taking risks by giving loans to companies having dubious credentials. What do you think on this.
ReplyDeleteHi Bharat, i personally feel that deregulation of interest rate will not augur well for private banks. Nationalized banks like SBI,OBC, PNB can offer high interest rates and wipe out competition they currently enjoy and the amount of excess cash they currently have. The so called big daddies can absorb shock in the initial period. Moreover, this will lead to a series of price wars atleast in the short run. would request your input on this. Thanks
ReplyDeleteGood thought Tarun. These nationalized banks enjoy good cushion of interest rates as they offer less interest on savings account. By offering high interest rates, these cushion would be taken away. Apart from social lending (at lower interest rates), the interest rates on other loans would increase. People are very lazy regarding shifting of saving accounts. So I think, there would be very less movement of accounts and also interest rates would not increase much because of cartelization among nationalized banks. Your views
ReplyDeleteAgreed on the point of cartel formation.
ReplyDelete