NEWS & ADVICE : FIXED DEPOSITS
Deregulation of savings deposit rates may hit NIM of banks
By Neelima Shankar
Jun 22, 2010
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The proposed deregulation of savings bank deposit rates is likely to put banks into a fix. Banks may have to raise the interest rates on these deposits following deregulation so as to gain competitive advantage.

This may affect the net interest margins (NIMs) of banks if they are unable to manage the higher costs that would be incurred in the process.

The margins of banks are already set under pressure owing to the interest rate calculation on a daily basis for savings account deposits and implementation of base rate.

With deregulation of savings bank deposits setting in, banks with higher cost of deposits might have to raise interest rates on these deposits to attract more customers. Moreover, deregulated rates would also infer interest rate fluctuation.

Amongst the savings bank deposits, 10% of the total deposits fall in the 14 day maturity category while the remaining 90% fall in the 1-3 year category.

However, all banks will not be affected with this deregulation. Banks like Axis Bank and HDFC Bank which have more than 50% of their total CASA accounted to current account, will not have an affect on their margins as such.


 


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