A few hours after the Reserve Bank of India (RBI) announced the bank savings rate last week, Yes Bank Ltd has raised the rate of 2 percentage points and Kotak Mahindra Bank Ltd. continued to week. No other banks have not yet responded to this gesture, but many fear that there will be a price war to attract depositors in savings banks. In fact, if this happens, consumers will benefit from cost of funds and banks will increase. This will affect your net interest margin, or the difference between the cost of capital and income in the distribution of funds, the key to profitability.

Yes Bank Rs 700 crore has been almost the value of savings deposits, which is less than 2% of their total deposits, up 2 points from the rate will increase the interest cost of Rs. 14 million rupees a year. At this point, the banking industry in India has a deposit base of Rs.56.25 billion and approximately 22% of this, or 12.38 trillion, is to save on bank deposits. If all the banks to increase their savings rate of bank deposits by the same margin, the annual cost to industry of Rs 24,760 crore. Even if you decide to increase the rate of one percentage point, the interest cost will increase Byrs. 12,380 crore, about 20% of net profit for the industry in fiscal 2011. Will it happen?

A savings account is the most common operation accounts for individuals and others for non-commercial transactions, a hybrid of continuous and has the length of deposit that offers the convenience of easy payment, checks and an alley to park funds in short-term interest. Banks generally put a cap on the total number of withdrawals allowed and set a specific minimum balance be maintained in these accounts.

In the last decade, the composition of savings accounts is not changed and the household sector continues to have a share of about 85% of these deposits, despite lower interest rates. This implies that while average inflation is higher and the real return on savings accounts is negative, the Indian households still keep the money in these accounts. This helps banks to reduce their average costs money and it is central to all banks has always been to drive up the share of current accounts and savings deposits in their total portfolios. The banks do not pay interest on current accounts.

Savings account interest rates were last amended in April, after an interval of eight years, and grew from 3.5% to 4%. Until fiscal 2010, the average cost of bank accounts was even lower by around 2.8%, as they used to pay interest only on the minimum balance is maintained between 10 and at the end of each month. Since April, interest is paid on a daily average.

Statuses of the deposition rate were established in September 1964 and before the rates are regulated by voluntary agreements between the major public sector banks and foreign banks operating in India. The only exception was a brief period of six months from September 1960 and February 1961, when the RBI regulated interest rates on deposits up to 14 days. Eight years later, in September 1969, RBI permitted the payment of interest on current accounts and deposits of up to 14 days. From 1979, almost all deposition rates given.

In April 1992, banks were given freedom to set interest rates on deposits from 46 days to three years and over in the ceiling prescribed by RBI. In October 1995, the structure of deposit rates will be made more flexible by giving banks the freedom to set rates on domestic deposits over two years and finally in October 1997, deposit rates were completely deregulated. In April 1998, the minimum term deposits decreased from 30 to 15 days, and it fell to seven days in 2002, only to wholesale deposits of at least Rs 15 lakh. Now, even retail customers can keep a total of seven days.

Savings bank deposits was the last stronghold of Indian bank administered rates. Non-resident Indian deposits are the only other bank products that offer long-term rates, but they are related to external sector and to embrace India's capital account convertibility, they will probably continue to be regulated by RBI should intervene to regulate the flow of money abroad.

First RBI to consider seriously the possibility of exempting savings came in 2006, but has not been able to face stiff resistance put by 'lobby, the Indian Banks' Association national bankers. Yes the bank will transfer the interest sparked by the war, and shake the system? I'm not sure about it. When the prices of fixed deposits were released, which is about 65% of total deposits in the system had not been renewed. It can be argued that competition was less at the time, but the counter-argument is that the banking system is more mature now.

Not too many banks are required to answer Yes to offer the bank, because they are so hungry for savings bank deposits YES BANK is, but one thing for sure is that they are forced to innovate. Consumers will receive an income interest in a little more at a time when inflation is high, but the cost of comfort as banks seek to limit the number of transactions and other peripheral things such as bank accounts and check books, etc. , low-value customers to reduce costs. They also prevent the branch of transaction hits on the customer, the bank branch is the highest. Alternative channels such as ATMs, Internet banking and telephone are encouraged to reduce transaction costs. Finally, releasing savings bank to encourage foreign and new private banks to offer in rural India, a traditional bastion of state banks, to raise funds for relatively cheap.

Source: Live Mint