With the new norms for calculating the interest rate on savings accounts kicking in on Thursday banks are not unduly perturbed about having to shell out a little more. Many of the banks that have a high share of salary accounts, believe they can make up for the higher interest rate by earning more ?other income.? They believe the impact on their net interest margins (nims) would, at worst be around 10-12 basis points.
?The impact is not so significant,? observes KS Manian, head of retail liabilities & branch banking at Kotak Mahindra Bank. ?There would be only a small impact on the profitability which can be compensated by increasing other income and volume of savings account customers,? said PC John, chief finance officer, Federal Bank. Other income, according John, encompasses distribution of insurance as well as mutual funds, sale of gold coins and online trading services while customers base has to be enhanced aggressively to get voluminous savings accounts.
?The higher interest will be an incentive for the small account holders to retain their balance in their accounts instead of bulk withdrawals. Moreover, HNIs are definitely likely to migrate from short term bonds and term deposits and maintain their balances in their SB accounts itself,? said PT Kuppuswamy, MD & CEO, Karur Vysya Bank, which is shortly launching a product for HNIs wherein services like payable at par cheques, demand drafts, internet and mobile banking services are offered without service charges.
With savings accounts accounting for about a fourth of its total deposits, HDFC bank sees marginal impact on profitability. Yes Bank?s savings accounts accounts for about 2% of its total deposits, so the impact would be negligible. Banks are planning to tackle the issue through a couple of compensation measures.
In a bid to minimise the impact of the higher cost of savings accounts, they are looking to focus more on high net worth individuals as also on more products. ?Now adays, customers have two or three savings account and our aim is to get them to use our account as the primary account and do the maximum number of transactions,? explains Manian.
Kotak plans more customer engagement through offerings like lucrative schemes in cards and net banking, bill payment facility and relationship building and expects to increase it existing HNI customer base by 2-2.5% by 2010-11.
Banks used to calculate interest on the savings account as follows: 3.5% p.a. or 0.29% per month on the minimum balance in savings account between the 10th and the end of the month.
Under new guidelines with effect from April 1, 2010, the rate of interest remains at 3.5% p.a. but calculation will be done at 0.0095% per day on the daily balance in the customer?s savings account.
This daily calculation is expected to generate additional interest income, which may prompt HNIs to park their short term surplus into to savings accounts than in short term papers or liquid funds. Interest income of Rs 10,000 and above is tax free in savings account.
Banks are required to incur additional interest outgo, which according to the bankers could be in the range of 15-30 basis points.