Savings deposit above Rs 1 lakh? You will earn less!

Your opportunity to earn higher interest by keeping more than Rs 1,00,000 in your savings bank account might soon be limited.

Only a few private banks currently pay more than four per cent interest on savings deposit balance. 

IndusInd Bank and Kotak Mahindra Bank had recently reduced their interest rate on savings deposit balance of up to Rs 1,00,000. But no bank, offering higher interest rate, has revised its rate for savings deposits over Rs 1,00,000. 

This is likely to change, as term deposit rates are now expected to head southwards. 

Romesh Sobti, managing director and chief executive officer at IndusInd Bank, told analysts during a recent interaction: "As fixed deposit rates fall, there will be a crossover sort of an intersection when the savings bank rates fully loaded for savings bank transaction cost become equal to fixed deposit rates. Beyond that it makes no sense to hold savings bank rate at six per cent. So, I think we will watch...For the time being, our drop in rates beyond Rs 1,00,000 will be dictated by a drop in fixed deposit rates." 

Many banks, including State Bank of India, have started reducing their term deposit rates in the last couple of months due to improved liquidity situation and muted demand for bank credit. 

IndusInd Bank currently offers six per cent interest on savings deposit daily balance of above Rs 1,00,000. The bank, however, reduced its interest rate on savings deposit daily balance up to Rs 1,00,000 by 100 basis points to 4.5 per cent with effect from September 1 this year.

"This is based on a deep study of behaviorals and the fact that we are very strong throughput in this category. Also, we have very strong cross sell resulting in a stickiness of this customer base. So, I think this will, over the next few quarters, reduce our overall cost of savings deposits," Sobti said. 

YES Bank, currently offering the highest interest (seven per cent) on savings deposit balance above Rs 100,000, is mulling a different strategy. 

Rajat Monga, senior group president for financial markets and chief financial officer at YES Bank, told analysts: "We (will) continue to support our seven per cent flagship programme and I think we are getting desirable outcomes. We do have a medium-term plan or thought process, if I may say, to moderate the pricing. Also, it depends on how the interest rate environment pans out. We may not remove the seven per cent headline, but we may increase thresholds at which seven per cent pricing becomes available to our customers." 

The bank currently pays six per cent interest on savings deposit balance up to Rs 1,00,000. "According to us, it is a non-material sort of zone. At least in our point of view, it is a non-material zone. So, even if we reduce our lower slab, it will be very semantical rather than more material," Monga said. 

Lakshmi Vilas Bank, which currently pays five per cent interest on savings deposit balance of over Rs 1,00,000, might also revise its rate after two to three months. "Depending on the interest rate scenario, our ALCO (asset liability committee) will take a decision," Rakesh Sharma, managing director and chief executive officer of Lakshmi Vilas Bank, told Business Standard.