Higher interest on savings account may raise additional service charges
By Vaibhav Aggarwal
Apr 8, 2010
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There may be a rise in cost of additional services linked to savings account following the implementation of the new method of daily interest calculation on savings account.

The reason for banks doing so is that their margins would be hit due to increase in cost of deposits following the new method of interest calculation.

Higher cost of additional services refer to increased charges for generating duplicate statements and bigger fines for not maintaining the minimum balance in the savings account.

This issue is likely to be discussed in the upcoming meeting of the Indian Banks Association (IBA). However, the chances of this decision coming up as a unilateral one is unlikely as many banks fear losing customers in the process and with respect to severe competition prevailing in the market.

"If there is an increase in cost of funds, there will be no option but to pass it on to the consumers either through interest rate increases or higher service charges," said a senior SBI official.

SBI has reported that its cost of deposits has risen to around Rs. 1, 200 crore following the implementation of new method of interest calculation for savings account.

"The impact is expected to be higher for banks that have a dominant share of salary accounts with highly fluctuating balances," a CRISIL report said.

The current service charges on savings account depend on the category of account held by an individual. If it is a salary account then an additional cheque book currently costs Rs. 50 which may increase to Rs. 150 if service charges are increased.

However, not all banks harbor the same feelings for offsetting increased cost of deposits. "The increase in cost can be offset by growing faster to achieve higher volumes of current and savings accounts (CASA)," said MD Mallya, chairman and managing director Bank of Baroda.

Indian Bank has no intentions of rising service charges. "But, if other banks decide to tinker with their service charges, I guess everyone will fall in line," said TM Bhasin, chairman and managing director of Indian Bank.


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