Tuesday, October 04, 2016

Continuing to offer 4%, 6%, 7%, etc., interest rates in deposits in savings accounts is going to be difficult for Indian banks

When interest rates for loans/ODs were ~13%, 4% looked cheap and even 6%/7% looked possible. But interest rates on securitized business loans/CC limits are around 10% now, and the best interest rates on FDs are around 8-8.5%, so 4%/6%/7% on savings accounts looks difficult to me. The old ratio of 7%/13% is now 7%/10%. The entire calculation has changed. As a percentage/proportion of the interest rate on loans, the interest rate on savings accounts is now much higher.

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