MUMBAI: Three more lenders — ICICI Bank, Union Bank of India and Punjab National Bank (PNB) — have brought down their interest rates on savings bank account, taking the total to 10. The cut in savings rate is likely to be a precursor to a cut in lending rates.
ICICI Bank and PNB said that they have reduced interest rate on deposits below Rs 50 lakh to 3.5 per cent from 4 per cent earlier, while rate on deposits of Rs 50 lakh and above remains unchanged at 4 per cent. Union Bank of India said that it has reduced interest rates on savings deposits with balances up to Rs 25 lakh to 3.5 per cent from 4 per cent earlier. Other accounts will continue to earn interest at the rate of 4 per cent.
According to a report by India Ratings, savings rate cuts will provide public sector banks (PSBs) — which have a larger savings account base — an edge over their private sector peers. “Cutting savings deposit rate for amounts below Rs 50 lakh presents large PSBs, which have a stable, large and granular savings deposit base, with additional manoeuvrability over private peers to cut marginal cost of lending rate,” an India Ratings report said. Assuming a 50-basis-point cut (100bps = 1 percentage point) in savings deposits, PSBs can cut their MCLR by 35bps, India Ratings said. “For private banks, the threshold is 25bps. This could intensify competition between large lenders with strong savings deposit franchise and capitalisation towards gaining credit market share while channelising some volumes in the commercial paper market towards bank credit,” the report added.
On Thursday, Yes Bank had cut return on accounts with balances of up to Rs 1 lakh to 5 per cent from 6 per cent earlier. The bank has maintained the 6 per cent return that it offered customers with deposits between Rs 1 lakh and Rs 1 crore, while reducing the rate on deposits above Rs 1 crore to 6.25 per cent from 6.5 per cent earlier.