The Reserve Bank of India (RBI) today proposed a deregulation of interest rate on savings bank accounts, in a bid to impart more flexibility to the interest rate structure.
This, the central bank said, would benefit both banks and customers as it would allow banks to tailor interest rates to the market needs while customers would be able to choose from an array of products.
"Regulation of interest rates imparts rigidity to the instrument/product as rates are either not changed in response to changing market conditions or changed slowly. This adversely affects the attractiveness of a product/instrument," RBI said in a discussion paper on deregulation of interest rate on savings accounts.
The average interest rate on savings bank accounts in the country has remained at 3.5 per cent since 1 March 2003, even as the Reserve Bank's policy rates and call money rates have moved significantly in either direction.
RBI said while interest rates in general have moved up substantially over the last few years, the administered savings deposit interest rate has not moved in sync with the changing market conditions - it has generally been unfavourable to savers.
While there is no fixed maturity period for savings bank accounts, RBI said banks generally consider the transaction balance of savings deposits as of the date of calculation of interest rate as the maturity period.