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Why Banks Are Reducing Savings Rates?

For last few days, banking headlines are all about reduction of interest rates on customers deposits. Many are calling it ‘banks gundagardi’ etc but the logic is very simple. It is in bank interest only!

  1. Post demonetization, banks are flush with cash so there is no need to keep deposit rates high as supply is good anyway.
  2. PSU banks NPA are skyrocketing which is denting their bottom line. So a high NIM (lending rates – deposit rates) will help these banks to boost their profits and ROA also. The later is tracked by RBI under PCA (prompt corrective action) rules.
  3. This will also give the bank a chance to keep the lending rates low with the hope that credit picks up. Here the situation is reverse of #1. Demand is muted while supply is good. But overall economy has to improve!

Hence it is basic banking principles and self interest that these banks are following. There is nothing more to it.

If you are in the right side i.e. looking for some loans for home, car etc, then just go for it.

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