Banking and monetary regulator Reserve Bank of India has advised banks to increase deposit rates in a bid to enhance the savings growth rate in the country even if it means pulling down the net interest margins (NIM) of banks.
"The NIM of the Indian banking system is higher than that in some of the other emerging markets, even after accounting for mandated social sector obligations such as priority sector lending and credit support for the government's anti-poverty initiatives," read a release by the apex bank recently on the Trend & Progress of Banking sector in India.
"While a higher NIM contributes to profitability, it also implies a higher cost of financial intermediation in the economy, which is considered a sign of inefficiency," said RBI.
Along with this the apex bank has advised that banks should aim at lowering lending rates so as to provoke more investment.
"The upward revision in the savings bank deposit rate from 3.5 per cent to four per cent and deregulation of the interest rate on savings bank accounts may improve savings deposit mobilisation going forward. However, in a competitive environment, with the deregulation of interest rates, savings deposits will be no longer be less expensive as they were in the past," the RBI said.