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4/29/12

Savings Account

DEREGULATION OF SAVING BANK ACCOUNT AND ITS IMPACT ON BANKS PROFITABILITY

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4/29/12

Panduranga Naidu Patrick Baretto Prakash Savings Account

THE ANNOUNCEMENT

Effective from 25th October 2011, RBI has explicitly sent notification to all the banks for changing their savings bank interest rates. Banks are free to determine their savings bank deposit interest rate. Till now they compulsorily had to pay 4.0%.

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Savings Account

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SUBJECT TO CONDITIONS

First, each bank will have to offer a uniform interest rate on savings bank deposits up to Rs.1 lakh, irrespective of the amount in the account within this limit. Second, for savings bank deposits over Rs.1 lakh, a bank may provide differential rates of interest, if it so chooses, subject to the condition that banks will not discriminate in the matter of Savings Account on such deposits, interest paid 4/29/12 44

DEPOSIT ACCOUNTS

D C S

E U A

M R V

A R I N

N T DE

M E M C U U CD

O E LF R
55

T R AL R

H T ET I N

E I F IX V G

E F N I XT CG R US E

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Savings Account

MEANING OF SAVING DEPOSIT

An account used to deposit money at a bank or credit union and earn interest on the account over time. Usually you can add or withdraw funds at any time. Banks may require a minimum to open or to maintain the account. A savings deposit is a hybrid product which combines the features of both a current account and a term deposit account.
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FEATURES OF SAVING ACCOUNT

v

The main objective of saving account is to promote savings. There is no restriction on the number and amount of deposits. Withdrawals are allowed subject to certain restrictions. The money can be withdrawn either by cheque or withdrawal slip.
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FEATURES OF SA CONT

The rate of interest payable is very nominal on saving accounts. Saving account is of continuing nature. There is no maximum period. A minimum amount has to be kept on saving account. No loan facility is provided against saving account.
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HISTORY OF SA INTEREST RATE

From 2002 the saving account interest rate remained at 3.5%. In 2011, the interest rate was increased to 4%. Oct. 25th , 2011 the RBI deregulated the interest rate.
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WHY DEREGULATE SA NOW?

HOW DO BANKS OPERATE IN TODAYS SCENARIO?

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Today banks serve their customers in a number of ways

ATM NET BANKING

TELE BANKING MOBILE BANKING

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Savings Account

BRANCH BANKING

1111

As the administered savings deposit interest rate has not moved in sync with the changing market conditions, it has generally been unfavorable to savers.

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EFFECTS OF DEREGULATION OF SA

Banks having low CASA ratio will benefit as they have less share of saving deposits in there total deposits which leads to lower interest outgo. Banks with Low CASA ratio will be first to increase interest rate which leads to competition. Yes Bank, Kotak Mahindra Bank and IndusInd Bank have low CASA ratio have already increase interest rate.

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Banks

Deposit Deposit Below Above Rs. 1 Rs. 1 Lakh Lakh

6.0% 5.5% 7.0% 6.0%

YES Bank Kotak Mahindra Bank IndusInd Bank Ratnakar Bank Karnatka Bank All Other Banks
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5.5% 5.5% 5.0% 4.0%

6.0% 5.5% 5.0% 4.0%

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Cont

Most saving bank accounts carry charges if the number of transactions exceeds the permissible level, this can be happen in India as banks margin will be hit by higher interest expenses. Customers could switch anytime if banks dont offer same interest rate as other banks offer.

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Cont

At present, Banks are under pressure with slow growth in loans due to high lending interest rates, so if they increase saving bank deposit rate they may have to increase lending rate to protect margin which leads to further slowdown in growth rates of loans and asset quality detritions. Savings Account 4/29/12 1616

PROS

May Enhance Attractiveness Savings Deposits Will Improve Monetary Policy Transmission

of

of

May Lead to Product Innovations

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CONS

Possibility Competition

of

an

Unhealthy

Risk of Asset Liability Mismatches May Lead to Financial Exclusion Could Adversely Affect Small Savers / Pensioners Possibility of Introduction of Complex and not so Easily Understood Savings Products 4/29/12 Savings Account 1818

Sr. No
1 2 3 4 5 6 7 8 9 10 11 12 13 4/29/12 14

Bank
Axis Bank Ltd Bank of Baroda Bank of India Canara bank HDFC Bank ltd ICICI Bank Ltd IDBI bank Ltd Indusland Bank Ltd Kotak Mahindra Bank Ltd Punjab National Bank

CASA
42% 33% 27% 29% 53% 44% 22% 28% 31% 39%

Saving Bank Net deposit as % of Interest Total Deposits Margin

23% 25% 21% 21% 31% 30% 8% 9% 12% 31% 33% 23% 2% 19 22% 3.37 3.03 2.76 2.92 4.85 2.33 1.98 3.78 5.99 3.91 3.27 ----2.88 2.99

State Bank of India 45% Union Bank of India 32% Yes bank Ltd 11% Savings Account Indian overseas bank 30%

Excel Sheet

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Savings Account Savings Account Deregulation and Its

2020

Reduction in Profit Margin More than 50.00% Between 50.00% to 40.00% Between 30.00% to 40.00% Between 20.00% to 30.00% Between 10.00% to 20.00% Betweem 1.00% to 10.00% Less than 1.00%
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No. of Banks 2 0 5 12 26 19 14
2121

Total

Savings Account

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What will Banks do?

No change SBI. Increase the saving interest rate without changing any other rates.

Increase the saving interest rate and also interest rate on loan

Become cost effective, Efficient in operation and create a new trend in the market.

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Savings Account Deregulation Savings Account

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AND IT HAS MADE ALL THE DIFFERENCE

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Savings Account

THANK YOU
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