Do customers understand the implications of pulling their money out of the savings accounts of nationalised banks and larger private banks to rush to those who are offering 6% and 7% returns—touted as a 50% jump on the previous 3.5%? Moneylife Foundation’s interaction with savers suggests that they have no clue. They are lured by smart advertising and are oblivious that debilitating competition may hurt them in the long run. They also respond with anger at any attempt by their existing banks to lock-in their savings by levying an exit charge.
On 25 October 2011, RBI had surprised bankers and depositors by deregulating savings accountinterest rates and triggering a rate war. Interestingly, no consumer group had demanded the deregulation; most people were satisfied with the hard-fought 3.5% interest on savings account was introduced in 2003. RBI produced a long discussion paper listing the pros and cons of deregulating interest rates, which flagged the possibility of unhealthy competition and that banks may prevent savers from accessing these accounts. But there has been no product innovation; larger banks have not joined the race to offer higher interest and only four smaller private banks have doubled savings interest to grab customers. So who was the RBI pleasing with its action? Savings deposits constitute 22% of total deposits, which makes it an attractive pie to grab. To make it easier for depositors to switch, RBI also proposed bank account number portability, which is another needless action that is hardly on par with telephone number portability. Who is the RBI serving with these unnecessary changes? Certainly not the depositor.