Four lenders cut rates on savings deposits this week as banks are flush with funds even seven months after demonetisation forced people to turn in most of their cash. The central bank’s repo rate cut on Wednesday further reduced the cost of funds.
Bank of Baroda cut rate on savings account deposits worth up to Rs 50 lakh by 50 basis points on Friday to 3.5 percent a year (a basis point is one hundredth of a percentage point). For deposits worth more than Rs 50 lakh, the rate continues to remain at 4 percent, the bank said in a notification on the stock exchanges.
It joins State Bank of India Ltd., Karnataka Bank and Kotak Mahindra Bank to lower rates on savings deposits. SBI, the country’s largest lender surprised the market on Monday by reducing interest on savings account deposits worth up to Rs 1 crore by 50 bps to 3.5 percent.
Prime Minister’s Narendra Modi’s decision to scrap 86 percent of the currency in circulation in November had forced people to turn in cash held in old Rs 500 and Rs 1,000 notes. About 40 percent of the deposits that came into current and savings accounts between November 8 and December 31 remain with the bank, Rajnish Kumar, managing director-national banking group at SBI, had said in a conference call.
SBI was followed by Karnataka Bank which said on Wednesday that it will introduce a four-tier structure instead of a flat 4 percent rate for all its savings account customers. It announced a rate of...
- 3 percent for deposits up to Rs 1 lakh.
- 3.5 percent for deposits of Rs 1 lakh to Rs 50 lakh.
- 4 percent for deposits of Rs 50 lakh to Rs 1 crore.
- 5 percent for deposits above Rs 1 crore.
Private sector lender Kotak Mahindra Bank on Thursday brought the rate down by 50 basis point to 5.5 percent on savings accounts deposits between Rs 1 crore and Rs 5 crore.
Interest rates on savings accounts had remained stagnant at 4 percent for many years, despite the Reserve Bank of India having deregulated them in October 2010. Only a few small private sector banks began offering higher rates to attract a larger base of current and savings account deposits.