Deregulation of Savings Bank interest rates – Valid Period

Deregulation of Savings Bank interest rates – Valid period.

This is with reference to the latest buzz, in the Banking Circles – Deregulation of Savings Bank interest rates.

The opinion is divided as to who will be the beneficiary – Banks or the customers?
I was discussing amongst my Peers and the following points emerged from the discussion.

01)     What will be the bench mark?

–                  Will this be linked to the Banks Base Rate or will it be an independent one.

–               Or, if the SB Interest Rate is fixed to the Bank’s Base Rate, some stability will be there.

–               If the SB interest rate is a Independent Rate, than it might create interesting situations, every time the interest is credited to the SB account, and the account holder tries to verify its correctness. She/he might visit the branch/lodge a email complaint/call up the phone banking number.

02)     What will be the minimum validity of the revised rate?

–       A Bank announces a SB Interest Rate of 5% on 25/06/2010.
–       Will this be valid for say, for the next 15 days, 30 days, or valid only till the next revision?
–       If valid only till the next revision, from the Interest Calculation angle, there will be no problem, as anyhow from 01/04/2010, interest is calculated on Daily end balances.

–      SB interest rates are also linked to the Term Deposit Rates. SB and Term Deposit Interest rates complement each other, and each cannot operate independently of each other.

–     Say on 01/07/2010 – the 15 Days Term Deposit Rate is 4.5% and the SB Interest rate is 4%. On 10/07/2010 the SB Interest Rate is revised from 4% to 5%. What will be the reactions at various levels?

This in my next post.