(From my post at Yahoo)
In a new notification, the RBI has provided for a complete savings bank rate deregulation, in which banks are allowed to set their own rates for savings bank deposits.
A savings bank (SB) deposit is what is called a checking account abroad, which you can write cheques against, and where money is withdrawable “on demand”.
Current accounts are similar, except they don’t pay any interest. SBs have traditionally been a big source of bank funding — from 1970, which is when early data is available, SB accounts have constituted between 20 and 29 percent of all deposits:
Of the total bank deposits of 56 lakh crores, nearly 14 lakh crores were in savings bank deposits. (2011 March)
SB accounts are an incredibly low cost of funds for banks, who used to pay just 4% as interest. Consider a bank like ICICI which has 29% of its deposits from savings bank accounts, and another 13% from current accounts (paying 0% interest).… (Read On...)
