Salary accounts to have more interest: Crisil
By siliconindia   |   Wednesday, 07 April 2010, 22:23 IST   |    3 Comments
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Salary accounts to have more interest: Crisil
New Delhi: Under the new rule by the Reserve Bank of India (RBI), where the banks will compute 3.5 percent savings interest on daily basis instead of taking the lowest deposit during a month, the salary account holders could see their interest income rise by up to 25 percent, reports PTI. According to the Crisil Ratings, it is estimated that for a salary account holder with a minimum savings balance between 1-2 times of the monthly salary, the increase in interest income will be between 10 and 25 percent. The new method of interest computation will increase the effective interest rate on savings balances, particularly for salary account holders. The new computation method has taken effect from April 1, 2010. Earlier, banks gave interest of 3.5 percent on savings accounts on the basis of the least deposit in an account between the 10th and the last day of each month. The interest is credited in the account twice a year, in March and September. As for impact on banks, Crisil said the cost of deposit for them will increase by 10-20 basis points (100 bps = 1 percent), depending on the share and pattern of the current and savings accounts (CASA). "This will not materially impact their profitability or lead to any significant change in the share of low-cost deposits, that is CASA in the banking system," it added. However, Crisil said that the impact is expected to be higher for banks that have a dominant share of salary accounts with highly fluctuating balances. At the end of February, all the commercial banks had a total deposit of over Rs 44 lakh crore, including savings, current and fixed deposits. The country's largest lender State Bank of India has over 1.56 crore savings bank account holders. Crisil said the average CASA levels in the domestic banking system stood at 33 percent, with savings deposits accounting for 22 per cent as of March 2009. But it added, "The share of savings deposits is estimated to have increased to 25 per cent as on December 2009, which would translate into an increase of 2-4 per cent in CASA levels by March 31, 2020." While announcing the annual monetary policy for 2009-10 unveiled last April, the Reserve Bank had said, "payment of interest on savings accounts by scheduled commercial banks would be calculated on a daily product basis with effect from April 1, 2010."