No cartelisation in fixing savings deposit rates: SBI

Tags: Banking

RBI deregulated these rates in its October 2011 credit policy

The nation’s largest bank State Bank of India (SBI) on Wednesday dismissed allegations of cartelisation by big banks in keeping savings deposit rate unchanged despite the Reserve Bank of India (RBI) deregulating this over a year ago.

Disputing the charges, SBI managing director and chief financial officer Diwakar Gupta, said, the bank’s decision not to raise interest rates on savings deposits is a purely commercial one and does not amount to cartelisation.

“I said it is not cartelisation,” Gupta said on the sidelines of a conference organised by consulting and accounting major PwC here.

SBI and its five subsidiaries, which nearly control 25 per cent of the banking system, have not increased their savings account deposit rates. They offer 4 per cent.

Gupta said he has been reading reports over the past few days about a possible action by the competition watchdog on banks for allegedly acting as a cartel by not increasing the rate on saving deposits, which was deregulated by RBI in the October 2011 credit policy.

The interest rate on savings accounts was the only regulated product in banking till RBI deregulated it.

Following this, only two commercial banks – Kotak Mahindra and Yes Bank – raised the deposit rates to 6 and 7 per cent, respectively. These banks, which were facing problems in raising the low-cost Casa (current account, savings account) deposits in the past, claim the move has been immensely beneficial.

From the cooperatives space, city-based Saraswat Bank had also increased the rate to 7 per cent.

Other banks currently offer just 4 per cent on an annualised basis to savings bank account holders, which was even lower at 3.5 per cent till April 2011.

“The fact is that if I move rates by 1 per cent, it costs me a billion dollars. I will never do it. Because nobody else does it, there will always be this question whether this is cartelisation,” Gupta said.

Right from the day one, SBI has been maintaining that it will not be the first one to increase rates, he added.

In a discussion on competition regulation at the PwC summit, Gupta said: “It is absolutely within the domain of the regulator to look at anything. But in the short-term, the industry then tends to become tentative when this kind of thing happens.”

“I think regulators have done a great job. At the same time, the regulatory action cannot be in the best interest of the industry some times... Somewhere, we do need to see if regulation is assisting the overall framework. I think the same is true for telecom, the same is true for mining and aviation,” Gupta added.

On the issue of judicial intervention in business matters, he said while staying a matter is fair legally, the judiciary should be sensitive to cost overruns if a proposal gets stuck.

“In an economy where 14 per cent is the cost of credit, if a project is delayed by two-and-a-half years, it is absolutely unviable...That is something which is important for the judicial process to recognise,” he said.

Banks have been hit as demand for project finance has reportedly dried up. With corporate loan demand now restricted to working capital funds, banks are now shifting focus on the retail borrowers.

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