NEWS & ADVICE : FIXED DEPOSITS
Hike in savings rate to impact banks' margins
By Neelima Shankar
May 19, 2011
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The rise in interest rates of savings bank accounts from 3.5% to 4% has come as a boon for savings account holders. However, the same is not the case with banks who fear their margins getting hit hard following this move by regulator Reserve Bank of India.

Amongst the lenders to be hit the hardest are banking majors State Bank of India and Punjab National Bank. The reason being these banks have savings deposits accounting for a major chunk of their total deposits. Thus an increase in savings deposit rates would lead to increase in their costs and thus affect their margins.

As per figures reported in the year 2009-10, the savings deposits accounted for 31.2% of the total deposits of PNB while for SBI it was 32%.

Amongst other lenders to be similarly affected are United Bank of India (13 basis points), Dena Bank (12 basis points) and Allahabad Bank (12 basis points).

"Every 50 basis point savings bank rate hike (all else remaining constant), negatively impacts margins by around 8 basis points. The PSU banks generally get more impacted because of their higher exposure to savings bank accounts compared to larger private bank peers," analysts Abhijit Majumder and Umang Shah said.

It is expected that lenders namely IDBI Bank and YES Bank are to be affected the minimum since the proportion of savings deposits in their total deposits is low.


 


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