De-regulation of Saving Account interest rates

Banking sector had went through plethora of changes so far since British era. Nationalization, privatization and de-regulations enhanced the effectiveness of Indian banks. Banks as we know are the growth engine of economy, without which we can't even think of survival in current scenario.

Three important events which happened in this fiscal pertaining to banks are very useful in boosting bank's operational efficiencies. These events are namely, introduction of base lending rates, daily calculation of saving rate and finally the deregulation of saving interest rate.

Out of above mentioned measures, deregulation of saving interest rates is going to be highly beneficial for banks. Currently, bank's saving account interest rate is 3.5%, but after deregulation it can be increased to some better level. Let's look at the various scenarios generated out of deregulation:

1. Depositors or bank account holders will be benefited by getting good interest income on their savings.
2. They will have more options of choosing their banks, on the basis of the interest rate being paid by them.
3. Since banking sector is perfect market, so automatically all the deregulated saving rates comes to an average which will be beneficial for the banks.
4. The most important benefit for banks is better asset-liability management. By analysing their asset potentials i.e., interest income from lent loans, they can manage their liabilities efficiently.
5. Daily calculation of the bank savings rate will complement this deregulation practices and motivate other people who currently don't have any bank account, to open up the same. This will help in fund mobilization from savings sector to the productive centers of the economy.
6. In highly competitive world, this method will make banking operations little flexible and give them a room to develop further and launch innovative products in order to meet the market's requirement.
7. This measure will also help banks in achieving financial inclusion objectives, if not directly then indirectly for sure.

RBI should look into the matter from various aspects and take this measure as soon as possible to complement all the above mentioned three measures which are inter-linked to each other in some or other manner.