Deregulation of the Saving Interest Rate

It is increasingly felt that the saving interest rate should be determined by the market forces rather than the stipulated by the RBI. RBI has issued a discussion paper on this topic in the website to mobilize the public opinion. The basic point for which the public opinion has been sought is the whether the chages should be made in a phasewise manner or it should be made sudden. Regarding this question there is a little doubt that the saving rate should not be changed at sudden, the various aspects related to the deregulation of the interest rate such as the shifiting of the saving account towards the commercial banks should be studied in detail. Although public sector banks is confident on handling the commercial attractiveness of the saving rate. There seems to be some unmentioned aspects which are likely to be followed such as the effect on the opportunity cost of the investment.

The other aspects which are dealt with in the current deregualtion of the saving rate is what will be the effect observed on the people which are residing in the lower section of the society, Since the information is not properly distributed so they are likely to lag behind in the sudden change. The person who are likley to affected will be the small pension hodlers, small and marginal savers in the rural and semi urban areas. Since the transaction cost in the case of these people tends to be high so the people are likely to be left out in the sudden development.

The other aspect include the extent upto which the commercial banks are agreeing to go for the competition, it is true that they will leave no stones unturned for taking the larger share of the savings since these are the savings only that will ultimately get converted into investment and will make the loans avaialble. The extent of the asset liability has to be carefully studied before taking any firm decision on this issue since too many asset liability gap will be detrimental for the overall welfare of the economy. At this stage of the development the shortfall of the credit will put back the economy in the downward stage.

The saving rate will also affect the disount rate calculation, the discount rate will increase with increasing of the saving rate since these both move together. The increment will make more people attracted to go for saving rather than the economic projects, At this stage if some of the projects are left then the proper infrastructure development will not take place.

 

[Dhruv Bindhani]

It is increasingly felt that the saving interest rate should be determined by the market forces rather than the stipulated by the RBI. RBI has issued a discussion paper on this topic in the website to mobilize the public opinion. The basic point for which the public opinion has been sought is the whether the chages should be made in a phasewise manner or it should be made sudden. Regarding this question there is a little doubt that the saving rate should not be changed at sudden, the various aspects related to the deregulation of the interest rate such as the shifiting of the saving account towards the commercial banks should be studied in detail. Although public sector banks is confident on handling the commercial attractiveness of the saving rate. There seems to be some unmentioned aspects which are likely to be followed such as the effect on the opportunity cost of the investment.

The other aspects which are dealt with in the current deregualtion of the saving rate is what will be the effect observed on the people which are residing in the lower section of the society, Since the information is not properly distributed so they are likely to lag behind in the sudden change. The person who are likley to affected will be the small pension hodlers, small and marginal savers in the rural and semi urban areas. Since the transaction cost in the case of these people tends to be high so the people are likely to be left out in the sudden development.

The other aspect include the extent upto which the commercial banks are agreeing to go for the competition, it is true that they will leave no stones unturned for taking the larger share of the savings since these are the savings only that will ultimately get converted into investment and will make the loans avaialble. The extent of the asset liability has to be carefully studied before taking any firm decision on this issue since too many asset liability gap will be detrimental for the overall welfare of the economy. At this stage of the development the shortfall of the credit will put back the economy in the downward stage.

The saving rate will also affect the disount rate calculation, the discount rate will increase with increasing of the saving rate since these both move together. The increment will make more people attracted to go for saving rather than the economic projects, At this stage if some of the projects are left then the proper infrastructure development will not take place.

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