Deregulation of Savings Accounts

8/2/2019 Deregulation of Savings Accounts

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4/29/12 Savings Account


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DEREGULATION OF SAVING BANK

ACCOUNT AND ITS IMPACT ONBANKS PROFITABILITY

Panduranga

NaiduPatrickBaretto

Prakash


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THE ANNOUNCEMENT

Effective from 25th October 2011, RBI has explicitlysent notification to all the banks for changing theirsavings bank interest rates.

Banks are free to determine their savings bank depositinterest rate.

Till now they compulsorily had to pay 4.0%.

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SUBJECT TO CONDITIONS

First, each bank will have to offer a uniforminterest rate on savings bank deposits up toRs.1 lakh, irrespective of the amount in the

account within this limit.

Second, for savings bank deposits over Rs.1

lakh, a bank may provide differential rates ofinterest, if it so chooses, subject to thecondition that banks will not discriminate in

the matter of interest paid on such deposits,44Savings A

ccount


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DEPOSIT ACCOUNTS

C U R

S A V

D E M

F I X E

C U M

R E C

T E R

C E R T I

F L E X

O T H

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MEANING OF SAVING DEPOSIT

An account used to deposit money at a bank or creditunion and earn interest on the account over time.

Usually you can add or withdraw funds at any time.Banks may require a minimum to open or to maintainthe account.

A savings deposit is a hybrid product which combinesthe features of both a current account and a termdeposit account.

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FEATURES OF SAVING ACCOUNT

v The main objective of saving accountis to promote savings.

v There is no restriction on the

number and amount of deposits.v Withdrawals are allowed subject to

certain restrictions.

v The money can be withdrawn eitherby cheque or withdrawal slip.

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FEATURES OF SA CONT

The rate of interestpayable is verynominal on saving accounts.

Saving account is of continuingnature. There is no maximumperiod.

A minimum amounthas to be kepton saving account.

No loan facility is provided against

saving account. 88Savings Account


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HISTORY OF SA INTEREST RATE

From 2002 the savingaccount interest rateremained at 3.5%.

In 2011, the interest ratewas increased to 4%.

Oct. 25th , 2011 the RBIderegulated the interestrate.

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WHY DEREGULATE SA NOW?

HOW DO BANKS OPERATE IN TODAYS

SCENARIO?

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Today banks serve their customers in a number ofways

NETBANKING

BRANCHBANKING

MOBILEBANKING

TELE BANKING

ATM

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As the administered savings deposit interest rate has notmoved in sync with the changing market conditions, it

has generally been unfavorable to savers.

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EFFECTS OF DEREGULATION OF SA

Banks having low CASA ratio will benefit as theyhave less share of saving deposits in there totaldeposits which leads to lower interest outgo.

Banks with Low CASA ratio will be first to increaseinterest rate which leads to competition. Yes Bank,

Kotak Mahindra Bank and IndusInd Bank have lowCASA ratio have already increase interest rate.

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Banks

Deposit

Below

Rs. 1

Lakh

Deposit

Above

Rs. 1

Lakh

YES Bank 6.0% 7.0%

Kotak Mahindra

Bank

5.5% 6.0%

IndusInd Bank 5.5% 6.0%

Ratnakar Bank 5.5% 5.5%

Karnatka Bank 5.0% 5.0%

All Other Banks 4.0% 4.0%Savings Account 1414


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Cont

Most saving bank accounts carry charges if thenumber of transactions exceeds the permissiblelevel, this can be happen in India as banks

margin will be hit by higher interest expenses. Customers could switch anytime if

banks dont offer same interest rate

as other banks offer.

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Cont

At present, Banks are underpressure with slow growth in loansdue to high lending interest rates, soif they increase saving bank depositrate they may have to increase

lending rate to protect margin whichleads to further slowdown in growthrates of loans and asset quality

detritions. 1616Savings Account


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PROS

May Enhance Attractiveness ofSavings Deposits

Will Improve Transmission of

Monetary Policy

May Lead to Product Innovations1717Savings Account


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CONS

Possibility of an UnhealthyCompetition

Risk of Asset Liability Mismatches

May Lead to Financial Exclusion

Could Adversely Affect Small Savers /

Pensioners Possibility of Introduction of Complex

and not so Easily Understood Savings

Products 1818Savings Account


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Sr. No Bank CASASaving Bank

deposit as % ofTotal Deposits

NetInterestMargin

1 Axis Bank Ltd 42% 23% 3.37

2 Bank of Baroda 33% 25% 3.03

3 Bank of India 27% 21% 2.76

4 Canara bank 29% 21% 2.92

5 HDFC Bank ltd 53% 31% 4.85

6 ICICI Bank Ltd 44% 30% 2.33

7 IDBI bank Ltd 22% 8% 1.98

8 Indusland Bank Ltd 28% 9% 3.78

9 Kotak Mahindra Bank Ltd 31% 12% 5.99

10 Punjab National Bank 39% 31% 3.91

11 State Bank of India 45% 33% 3.27

12 Union Bank of India 32% 23% -----

13 Yes bank Ltd 11% 2% 2.88

14 Indian overseas bank 30% 22% 2.9919


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Excel Sheet

2020Savings AccountDeregulation and Its
http://var/www/apps/conversion/current/tmp/scratch31147/draft%20excel.xlsxhttp://var/www/apps/conversion/current/tmp/scratch31147/draft%20excel.xlsx


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Reduction in Profit Margin No. of Banks

More than 50.00% 2

Between 50.00% to 40.00% 0

Between 30.00% to 40.00% 5

Between 20.00% to 30.00% 12

Between 10.00% to 20.00% 26

Betweem 1.00% to 10.00% 19

Less than 1.00% 14

Total 782121Savings Account


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4/29/12 Savings Account 2222Savings Account


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What will Banks do?

2323Savings Account Deregulation

No change SBI.Increase the savinginterest rate without

changing any other rates.

Increase the savinginterest rate and also

interest rate on loan

Become cost effective,Efficient in operation

and create a new trend inthe market.


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THANK

YOU

AND IT HAS MADEALL THE

DIFFERENCE

2424Savings Account

Deregulation of Savings Accounts

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