Savings bank accounts- ‘interest’ing issues
Division of Theoretical Statistics and Mathematics, Indian Statistical Institute, New Delhi 110016
Department of Statistics, The University of Akron, Akron, Ohio 44325
India’s present method of computing interest on savings bank accounts has an
effective yield much below the declared rate of interest. The method which was
adopted during the pre-computer era has continued much after computerization of the
banks. An alternative method is suggested which keeps the yield at par with the
declared rate of interest. A trend analysis of the savings deposit interest rate vis-à-vis
other rates like PLR, term deposit interest rates, repo & reverse repo rates and CRR
indicates that it is time to take corrective measures and increase the rate of interest on
savings bank accounts. Finally, some related issues are analysed and remarks made.
As on March 2005, the scheduled commercial banks held a staggering 320 million savings
bank accounts attributing to 69% of total number of different types (current, savings and
term) of deposit accounts, and majority of such depositors are by and large small holders.
The manner of calculating interest on savings bank deposits is such that it ignores the
interests of the depositors and facilitates hidden access of cheap money to the banks. Ms.
Kishori J. Udeshi Chairperson, Banking Codes and Standards Board of India (BCSBI)
recently raised the issue, once again, in her lecture “Protecting the Banking Rights of the
Common Man” at the World Consumer Day 2007 function. An excerpt from her lecture is
as quoted below.
“According to statistics published in the RBI, Bulletin, July 2006, as on 31st March 2005,
Savings Bank deposits amounted to Rs.472,147 crore forming 26 per cent of total deposits
of scheduled commercial banks. The savings bank deposits of individuals amounted to
Rs.364,869 crore or 77 per cent of the total savings bank deposits. These savings bank
deposits are remunerated at 3.5 p