Welcome you all to the first day of new financial year (FY 2010-11)!!
Let me start our discussion with good news for the holders of savings accounts – the largest pie of the banked. The new rule of the Banking Regulator, the Reserve Bank of India (RBI) makes it mandatory for all commercial banks to credit interest on savings accounts on a daily basis. Though the amount of interest will be credited at the end of the quarter, the calculation of interest is now made on the basis of daily closing balance. Earlier, banks used to compute interest on the amount remaining in the savings accounts during 10th of the month and the last day of the month at the prevailing interest rates; and the worse: the interest used to be calculated on the minimum of the balances during those 20 something days of any month.
Take for example a savings account holder deposits an amount of Rs. 20,000 in the beginning of a month in his account. Due to some reason or other, he withdraws Rs. 19,000 on the last day of month. In the previous setup of interest calculation, he used to get an interest credit of Rs. 2.55 something. Now, when interest will be calculated on a daily closing balance basis, he gets an interest of (to some extent, whopping!!) Rs. 55.94 something. This is obviously much more beneficial for retail customers of banking services.
What it means for the banks?
The margin of the banks will obviously be reduced as they have to shed more amount as interest to their customers. This also comes with some peculiarities on account of calculation of interest on daily basis. This is supposed to discourage the banking industry from offering savings accounts with more benefits.
What it means for the accountholders?
In the new regime, retail accountholders expects to get more amounts to their credit as interest on their savings account. Since, most of such customers belong to moderate and low income group, they are less likely to maintain significant balance in their savings accounts, and thereby little chances to get more money as interest. Now, they can get maximum benefits on whatever amount is there in their savings account. This may probably influence their tendency to keep some balance (even little sums) always in their account in the hope for (at least) some interest. This is expected to boost small savings habits among the retail accountholders.
More importantly, the newer addition to the retail customer of banking services in rural and sub-urban areas will be most benefitted from their small savings maintained even for a single day. Thus, their amount lying in their savings accounts will not remain idle for a large period as in the past. Smaller savings may also influence investment practices to some extent, but this is not yet experienced in our case. Let’s hope for the best of it!!
And Keep Savings for Our Future, even if in the Savings Accounts 🙂
Filed under: Behavioral Finance |