Thursday, September 23, 2010

RBI to hold down interest rate on small savings.

Newspapers reported yesterday that Indian bankers are putting up a "stiff resistance" to RBI's plan to free the interest rate on savings bank accounts.

Thanks to a cosy arrangement, sponsored by the RBI, bankers are getting handsomely paid by bank account holders to keep their money for them. The current interest rate paid on savings bank accounts is 3.5%, while inflation currently runs at anywhere between 8% &10%.

The spread bankers earn from lending this money to business, home-buyers or car-purchasers is scandalous.

Obviously, bankers would like to protect this low-cost source of funds. Responding to bankers' pleas that it is "premature to deregulate the savings bank rate", the RBI has said that a working group would be set up to look into the matter of deregulation.

Kick the can down the road, and the small depositor up the ass.

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