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Friday, August 31, 2012

Smaller banks gain from rate decontrol

Deposits Grow With Lenders Offering Up To 7% Interest On Savings Accounts
Mumbai: Large banks may have refused to revise their interest rates on savings deposits,but there are clear signs that small banks that have raised interest rates have gained significantly.
Since the deregulation of savings deposit interest rate in October 2011,five private banks,10 foreign banks and a co-operative bank have increased their savings deposit rate in the range of 100-500 basis points so far,according to RBI data.These banks have increased their share of savings bank deposits in the banking system from 1.8% to 2.1% in the post-deregulation period up to July 2012.
Neither large PSU banks like the SBI nor private lenders such as HDFC Bank and ICICI Bank have revised rates from 4%,which was mandated earlier.All these large banks say that they have not lost out on deposits.
Our experience has been very positive.The increase in rates was combined with strong communication campaigns coupled with mobilization of marketing forces on the ground.We have seen our savings accounts increase by 56% while the number of customers has gone up by 60%, said K V S Manian,head of consumer banking at Kotak Mahindra Bank,which has revised savings deposit rate to 6%.
Yes Bank has had a similar experience.According to Rana Kapoor,MD & CEO,Yes Bank,the banks saving deposits have almost quadrupled since deregulation of rates.Yes Bank,which until recently focused on corporate banking,used the higher deposit rate as a tool to attract salary accounts,telling companies that their employees savings will get returns commensurate with the rate of inflation.Kapoor said that interest rate is becoming the differentiator.Indians are not stupid and they are frugal people and they realize the value of earning three percentage points more, he said.
One reason why larger banks have not been daunted by smaller private lender is that these banks have a relatively smaller network.But most bank customers are today choosing to transact through alternative channels such as ATMs and the internet rather than visit branches.As a result,absence of a local branch is not a deal breaker for prospective customers.In banking,alternative channels are the way of the future.We are giving prospective customers the option of opening the accounts online where a representative will visit them with a tablet PC through which he will scan documents and open an account, Manian said.
He feels technology enables the bank to open accounts at lower costs and the bank passes on some of the benefits to the customer in the form of higher rates.
The smaller banks have also got a boost by the decision in the Union Budget to provide tax breaks to interest income of up to Rs 10,000 on SB accounts.For someone offering 6%,the post tax yield is equivalent to short-term fixed deposits.Secondly,RBI has allowed banks to offer higher rates on deposits above Rs 1 lakh.Yes Bank offers large depositors 7%,which has accelerated its deposit collection.


New age banks that have raised rates have seen their savings accounts grow sharply Internet banking,freeaccess to ATMs help overcome infrastructure constraints Tax break on interest income of up to Rs 10,000 on SB accounts an added attraction Not a single PSU bank has raised SB deposit rate.
Source : The Times of India, Aug 31, 2012

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