Daily interest on savings may make add-on services costlier.

Banks may raise charges on a host of services linked to your savings account, as they look to offset higher cost of deposits due to daily calculation of interest.

You may have to shell out more for services such as duplicate statements and pay heftier fines for not maintaining minimum balance in your account. The new RBI guidelines in effect from April 1 stipulate adoption of the daily average method for calculation interest on saving accounts.

The issue may be discussed at the next meeting of the Indian Banks Association (IBA). Banks may not take unilateral action for fear of losing customers to competition.

“If there is an increase in cost of funds, there will be no option but to pass it on to the consumers either through interest rate increases or higher service charges,” said a senior SBI official.

The increase in the cost of deposit for State Bank of India, the country’s largest lender, is around Rs 1,200 crore per annnum as it has started paying interest on daily balance in accounts from April 1.

“The impact is expected to be higher for banks that have a dominant share of salary accounts with highly fluctuating balances,” said a report by the ratings agency Crisil.

Currently, service charges for each bank depend on the category of savings account. For a regular salary account, an additional cheque book currently costs around Rs 50. Giving a standing instruction may cost you Rs 150.

Charges for not maintaining minimum balance vary from Rs 50 a month in public sector banks to Rs 750 a quarter in case of private banks.

Savings accounts have been the cheapest source of funds for banks. They form a considerable part of the bank’s portfolio. In the case of SBI, savings deposits account for about 43% of the total deposits.

An executive with a leading private bank said his bank would consider an increase in service charges if there is some consensus on the issue at the next IBA meeting.

Bank of Baroda has a different strategy to offset higher costs. “The increase in cost can be offset by growing faster to achieve higher volumes of current and savings accounts (CASA),” said MD Mallya, chairman and managing director of the government-run bank.

There will be a notional increase in the cost of deposits but overall margins will be maintained, he said.

A higher CASA ratio means higher portion of the deposits of the bank has come from current and savings account deposits, which are cheaper source of funds.

Some smaller banks such as Indian Bank do not want to increase service charges. “But, if other banks decide to tinker with their service charges, I guess everyone will fall in line,” said TM Bhasin, chairman and managing director of Indian Bank.


Source: Economictimes.

Thanks,
Nimesh.