Till some time back it was the sacred religion of all bankers (and more particularly the PSU banks of all sizes ) to memorize and practice three magic watchwords– the operating bottom-line (meaning bank’s margins and profitability), recovery of funds lent ( of NPAs) and CASA – the popular acronym for Current and Savings Bank (SB) accounts.
Of these, like the traditional values cherished by our Indian sensibilities, Savings Deposits ( the major part of CASA) had all the virtues you could aspire for – less costly, stable, spread among all sections/ages of people and free from undue risks. No wonder, all banks ended up vying for a piece of the Savings cake by offering hybrid-products, linking it to fixed deposits (by ‘sweep’ the excess amount method), freebees for those maintaining special type of accounts with higher balance. While after the deregulation of Savings interest rate by RBI in 2011, many private banks started offering higher rates, PSU banks stoically continued at 4% rate.
However, suddenly, SB, the dependable veteran is not much sought after akin to the discarded parents in family drama ‘Baghbaan’. The biggest Bank felt that too much Savings has come in and it no longer needs to attract depositors with the same force. This has led to an all round free fall of SB deposit rates to as low as 3.5%. The justification, available on hand is – this will lead to higher margins and lower loan rates all across.
Who are the people who keep their money in Savings deposits (and FDs) – a widely dispersed class such as retired people, daily wage labourers, shopkeepers, vendors, average salaried small savers and also non-profit organizations like schools. The convenience and security of possessing debit cards, passbooks, cheque-books of banks overrides such people’s concern for earning high interest but squeezing this to 3.5% is to even wipe any real interest accounting for 4% inflation. It is accepted that for most, the returns on fixed and SB deposit are the social security for real.
‘ The time has come..’(to quote the Walrus from ‘Alice in Wonderland’ ) to look at other avenues of investment like mutual funds and the large number of schemes on offer. But is the average person educated in the risks and rewards of these investments vis-à-vis Savings accounts and laudable objectives of financial inclusion ?!
(Pic source : citysavings.com.ph )
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