The All India Bank Depositors’ Association (AIBDA) has requested the Reserve Bank of India (RBI) to advise banks to reduce their operating cost and prune the net interest margin, so that the entire burden of cut in interest costs does not fall on depositors.
The Association, in its pre-monetary policy memorandum to RBI, underscored that the depositors in the small income earner and senior citizen categories are suffering the most due to the current negative real interest rate (adjusted for inflation).
“While a pause in repo rate is desirable to support growth at this point in time, too much liquidity in the market works adversely against the depositors without a significant increase in bank credit. As depositors are major stakeholders and risk bearers in the financial system, their interests should not be ignored,” said DG Kale, President and Amitha Sehgal, Honorary Secretary, AIBDA.
They cautioned that a negative real interest rate may increase the wedge between savings and investment in the economy going forward and hamper growth in the long run.
The Association observed that since February 7, 2019, the repo rate (interest at which RBI provides liquidity to banks to overcome short-term mismatches) has been reduced by 250 basis points and has remained unchanged at 4 per cent since May 5, 2020.
Moreover, the RBI has made a liquidity provision of over ₹13-lakh crore in 2020-21.
Flush with liquidity amidst sluggish demand for credit, commercial banks reduced term deposit rates nearly by 200 basis points, it added.
Take a cue from government
The AIBDA office bearers opined that banks could take a cue from government’s decision not to cut the interest rates on Small Savings Schemes.
“In a deregulated environment, it may not be possible for the RBI to re-regulate deposit rates. But the entire burden of cutting interest costs should not fall on depositors. We would like to reiterate that the one-year real deposit rate should be at least 2 per cent for saving-investment equilibrium to be maintained at a reasonably high level,” Kale and Sehgal said.
The Association said no charge should be imposed by the card-issuing bank in case of a failure of transaction at ATM/POS.
Referring to banks imposing a fee every time there is a transaction decline at an ATM or point of sale (POS) due to insufficient balance in the account, the AIBDA reasoned that such transactions are nowhere at par with cheque/ECS returns. These charges are currently of the order of ₹25 + GST.
“It (declined POS/ATM transactions due to insufficient balances) does not involve any intent of systemic inconvenience or distrust to a third party. We would like to mention that NPCI does not consider it as a transaction and there is no cost imposed by NPCI/ acquirer bank onto the card-issuing bank,” said Kale and Sehgal.