State Bank of India announced 50 basis points (bps) cut in interest rates on Savings Bank accounts for having deposits below Rs.one crore. This will have a direct impact on pensioners and salaried people, who invest their hard earned money into Savings Bank accounts to lead a peaceful living. As the interest rates are reduced, it will pinch the pocket of pensioners. The decline in the rate of inflation and high real interest rates are the primary consideration warranting a revision in the rate of interest on Savings Bank deposits. It is the convenience, safety, trust which is still in the banks’ favor and the depositors are the losers as in the past couple of years. However, the rate cut had nothing to do with the impending RBI monetary policy coming with immediate effect. The rate cut may have a direct impact on loan interest rate. Banks have surplus funds to dispose of as loan to earn the profit before the end of the financial year, March 2018. The industry has no appetite for credit as many of the borrowers are in over borrowed position and in fact unable to service existing debt. The only segment that might be benefited from slashing of lending rate is the consumer loan takers. Consumer behavior is peculiar in India, and mere availability of cheap funds may not induce buying. Slashing of lending rate may have some effect only in Home Loan takers. But there are also a huge inventory of unsold apartments in all major cities and refusal to reduce the price by the builders is a big issue.
(The views expressed by the author in the article are his/her own.)