Your Savings Account Deposits Are Earning You Lesser And Lesser
The deluge of bank deposits post the government’s demonetisation drive is pulling down banks’ cost of funds. (Photographer: Anindito Mukherjee/Bloomberg)

Your Savings Account Deposits Are Earning You Lesser And Lesser

A number of top banks have cut interest rates on savings account deposits as lenders remain flush with funds.

Over the last few weeks, lenders such as State Bank of India, ICICI Bank, Axis Bank, Kotak Mahindra Bank and Punjab National Bank have cut the interest they offer on savings accounts.

On Thursday, Punjab National Bank said it will bring down its savings account rate by 50 basis points across all categories. For deposits worth up to Rs 50 lakh, the rate was lowered to 3%. For deposits higher than that, the bank will offer 3.25%, effective July 1.

A day before, ICICI Bank lowered its savings account rates by 25 basis points to 3% for deposits up to Rs 50 lakh.

Yes Bank announced the steepest cut in its savings account interest rate for deposits up to Rs 1 lakh, which was cut by 100 basis points to 4%, with effect from June 1.

Kotak Mahindra Bank now offers only 4% for deposits above Rs 1 lakh and 3.5% for deposits below Rs 1 lakh.

SBI continues to offer the lowest rate to its savings account depositors at 2.7%. On May 31, SBI had lowered its savings account rates by 5 basis points.

Savings account deposits are low-cost deposits maintained by customers in their accounts for daily transactions. The interest rates offered by banks on this category of deposits were regulated and set by the Reserve Bank of India till 2010.

Even after deregulation, most large banks maintained their savings account interest rates at 4%, while newer private sector lenders raised rates to attract depositors. It was only in 2016, when the government banned Rs 500 and Rs 1,000 currency notes, that large banks started to tinker with their savings account interest rates.

SBI was one of the first large banks to bring down its savings account interest rates at the time. Last year, the country’s largest lender linked the savings account interest rate to the repo rate after floating rate retail loans were also linked to an external benchmark. SBI, however, did not strictly follow this external benchmarking on savings account deposits as that would have led to a sharp cut in returns for a number of small depositors.

At present, banks are flush with deposits as consumers are saving more than they are spending amid the Covid-19 pandemic. Lending avenues are also limited due to the slowdown in the economy.

Public sector banks, in particular, have seen a rush of deposits after the crises in Punjab & Maharashtra Cooperative Bank and Yes Bank last year. This led to a shift in deposit flows away from private banks and towards public sector peers.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.