State Bank of India chairman O P Bhatt said today that deregulation of interest rates on savings account will not be good for India's banking system.
"It may at best help a few banks but not definitely the system," Bhatt said at a conference in Mumbai.
He further said that the savings bank account is a unique Indian model, and without it Indian banks cannot go on lending to long-term projects.
Last month, Reserve Bank of India governor D Subbarao had said that the central bank will soon come out with a discussion paper on deregulation of interest rates on savings accounts.
"There is a view that we should deregulate the interest rate on savings bank accounts too. We are examining the pros and cons of doing that and will shortly put out a discussion paper for eliciting feedback," Subbarao had said.
At present, RBI only monitors interest rates on NRI deposits and savings bank accounts, while interest rates both to savers and borrowers work on the principle of competition among banks.
"Regulation has both costs and benefits. Excessive or inappropriate regulation increases intermediation cost, impedes efficiency and stifles innovation," Subbarao had said.
While the RBI, as part of the economic reforms programme, deregulated fixed deposit rates, it had not freed the rates which banks pay on savings deposits. Banks currently pay 3.5 per cent on savings deposits.