Expert Zone

Straight from the Specialists

Rate wars to commence?

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(The views expressed in this column are the authors’ own and do not represent those of Reuters)

By Robin Roy and Sanjoy Majumder

Indian banks are facing a dual challenge. Monetary tightening by the RBI is already impacting the banks’ margins and due to an imperfect monetary transmission system, banks are not able to pass off higher lending rates to the borrower across the board.

Also, the savings rate deregulation would raise the costs of raising core deposits (consisting of sizeable proportion of saving banks) and again impacting margins. Estimates of the impact on NIMs in the current fiscal across the sector range from 50 basis points to over 100 basis points, depending on share of the savings bank in the deposit kitty.

In the first reaction to deregulation of the savings bank rate, a few of the private banks who have a low CASA (Current Account, Saving Bank) below 15 pct  increased savings rate to attract more depositors in this category.

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