Aditya Puri, managing director, HDFC Bank, believes that deregulating the savings rate at a time when liquidity is tight may not help anybody and says there is unlikely to be any price discovery or innovation. The chief of India’s most consistently profitable bank tells Shobhana Subramanian and Anita Bhoir that if rates are deregulated, charges too would need to be freed.
Your thoughts on the deregulation of the savings rate...
We need to be clear about why we are deregulating savings rate. Presumably it’s because we say every other rate is deregulated so this also should be deregulated. In a scarcity situation, every participant in that industry is competing with each other. It’s just like if you do an oil price deregulation when the price is at $50-60 a barrel, you would not have a problem. However, at $110 per barrel you will have a problem. You are maintaining tight liquidity at this point in time so if you must deregulate rates, you should first wait for market conditions to normalise.
The RBI has said that deregulation would facilitate price stability and innovation. What do you have to say on that?
I don’t know what innovation it facilitates. As far as interest rate on savings accounts are considered, overseas nobody is giving 3.5%. Today the rate on a 30-day deposit is 4% with no ATM card, no cheque book, no cash withdrawal at my counter. As a banker I would prefer this as the cost of maintaining a savings account is very high and nobody offers that rate globally. For a savings account to break even at 3.5%, you would need an average balance of Rs 7,000 per month. At 5.5 %, you would need an average balance of Rs12, 000 to break even.
To presume that banks would raise deposit rates if rates are deregulated would be wrong. IBA has been saying there will be a decline. Once you say you have deregulated saving rates, you will have to deregulate charges. Six free transactions on the ATM itself costs the bank Rs 70 and if you multiply that by 12, the cost is higher. Price discovery will hurt financial inclusion which the RBI governor also acknowledged.
Does this mean long-term lending by banks would be affected because these accounts would no longer be sticky?
For the system as a whole, saving accounts will remain sticky but that will not be the case