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Event: The Reserve Bank of India may soon set up a working group to look into
the issue of deregulation of savings bank interest rate.
Impact: Banks with lower CASA base may hike SB rate to lure more depositors.
Competition may eat up NIM by few basis point as it will make blended average
cost of funds to inch higher for banks. However if more depositors are to opt for
savings bank ac instead of putting their money in other asset classes, that may
act as a positive trigger for deposit growth which was lagging behind the credit
growth in the country for last couple of months. In another case, RBI may opt
for p
partial deregulation
g by
y fixingg a Cap
p & Floor on SB rate. Banks can also mop p
up slightly longer term funds by offering higher savings rate which is a positive
as it will increase the average duration of liabilities and will reduce ALM risk in
case the bank put more focus on long term financing like infrastructure
financing.
Savings bank account is the most common operating account for individuals and
others for non-commercial transactions. It helps people to put through day-to-
day banking transactions besides earning 3.5% return on the savings made.
Banks generally put some ceiling on the total number of withdrawals permitted
during specific time periods. Banks also stipulate certain minimum balance to be
maintained in savings accounts.
Lower CASA base impedes banks in generating higher spreads over its cost of funds.
Banks with higher CASA base usually deployed their incremental deposits towards higher
yielding advances. We believe that further improvement in NIM for banks with high CDR
( 70%) & high
(>70%) hi h CASA (>30%)
( 30%) would ld be
b difficult
diffi lt as banks
b k would
ld need
d to
t invest
i t a partt off
their incremental deposits to meet the NDTL requirement of 25%.
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