Reserve Bank of India (RBI)
announced its second quarter review of Monetary Policy 2011-12 today. As expected, the repo rate has been hiked by
25 basis points (100 basis points is one percentage) to 8.5%. The reverse repo rate stands adjusted to 7.5%
(spread of 100 basis points below the repo rate). RBI has stated in its press release that “…momentum indicators, particularly the
de-seasonalised quarter-on-quarter headline and core inflation measures,
indicate moderation. This is consistent
with the projection that inflation will decline beginning December 2011”. Thus there are chances that this may be last in
series of rate hikes and RBI may take a pause.
De-regulation
of Interest Rates
RBI increased interest rates on savings bank deposit to 4% in May 2011. To complete the process of deregulation of
the rates, banks are now free to determine savings bank deposit interest
rates, subject to the following two conditions:
1. for deposits upto Rs. 1 lakh,
uniform interest rates shall be offered by all banks.
2. for deposits above Rs. 1
lakh, banks are free to provide
differential rates of interest.
The operational guidelines,
to be released, shall specify how this shall work. But banks shall not be allowed to discriminate
between customers on interest rates for similar amount of deposit. Thus each bank shall offer different interest
rates, depending on the market conditions and interest rate scenarios, on savings
bank deposit above Rs. 1 lakh.
Generally it is not advisable to keep substantial amount in savings account since one gets less interest on it. However it is a positive move considering
that traditionally we love to keep money in bank accounts and any increased in interest rates on such deposit is welcome.
Enhancement
of Customer Service and no prepayment penalty
Damodaran Committee had
made several recommendations for improving customer service in banks. 10
action points on which broad consensus have emerged has been decided to be implemented.
Key points amongst the 10 actions points are:
1. No pre-payment penalty for
floating rate loans. However fixed rate loans shall continue to have pre-payment
penalty.
2. Issue of TDS certificate
and to dispatch it to account holder’s mailing address.
3. One view of all bank
accounts (savings, fixed deposits, loans, etc) with a bank.
Also Read: Future of banking experience in India
Though RBI has increased interest rates, which can lead to increase in rates for home and other
loans products, deregulation of savings deposit interest rates, abolition of prepayment penalty on floating rate loans and improvement in customer service are few positives from this monetary review announced a day before Diwali.
Happy Diwali!!!
