Analysts believe other banks will also slash savings rates or, at least, restructure their savings products to reduce costs.
Axis Bank on Tuesday lowered the interest rate on savings accounts (SAs) of up to Rs 50 lakh by 50 basis points (bps) to 3.5%. The bank will continue to pay 4% interest on savings accounts with balances of more than Rs 50 lakh.The cut follows a similar move by State Bank of India (SBI) on July 31 for deposits of up to Rs 1 crore.As on June 30, Axis Bank had a savings-account base of Rs 1.22 lakh crore, up 22% from the corresponding period a year ago, but 3% lower than the March-end figure of Rs 1.26 lakh crore.
Most public and private sector banks pay 4% on savings accounts. Mid-sized private lenders Kotak Mahindra Bank and YES Bank are exceptions, offering 6% for deposits with smaller balances, as they seek to expand their retail deposit base.
Last week, Kotak Mahindra Bank reduced the rate on deposits of between Rs 1 crore and Rs 5 crore by 50 bps to 5.5%.
While banks received a deluge of flows into savings and current accounts following the government’s decision to demonetise high-value currency notes, they claim much of this has flown out with the return of cash in the system.
State Bank of India said in the previous week that 60% of the deposits that had come into the bank with demonetisation had since moved out.
It is believed that some of these deposits may have simply moved into term deposits, where the yield is higher. Since the announcement of the note-ban exercise, the total value of deposits with banks has remained consistently above Rs 104 lakh crore.
Analysts believe other banks will also slash savings rates or, at least, restructure their savings products to reduce costs. In a recent note, investment bank Jefferies wrote, “Higher rates are an easy hook in to the customer, however, we also believe that higher rates seldom lead to growth in per account balances and are more driven by better transactional products.”
It added that YES Bank has mentioned lowering the SA rate in line with the system as one of the tools available to it to reach its stated goal of a 4% net interest margin by FY20.