Following the release of a discussion paper on deregulation of savings bank deposit interest rates, the Reserve Bank of India (RBI) has in its second quarterly review of Monetary Policy 2011-12, deregulated savings bank deposit rates with immediate effect. Given the low penetration of savings bank accounts in India (only 36 bank accounts for every 100 persons as on March 2009), we are very excited by this significant step. In the short run, this is expected to increase returns to consumers on their savings accounts by triggering competition between banks, in a manner that may be similar to what was observed for deregulation of domestic term deposit interest rates. In the long run, bringing down the ‘negative real returns’ characteristic will make bank accounts a more attractive savings instrument.
We look forward to the operational guidelines for this deregulation move. We hope that these guidelines will take into consideration consumer protection measures to safeguard the interests of about half of all Indian households that save, invest and diversify into various physical assets in the absence of access to suitable financial assets. Our responses to RBI’s discussion paper on the same can be found here.
 Basic Statistical Returns of Scheduled Commercial Banks in India and Handbook of Statistics on the Indian Economy, RBI, Various Issues