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Hitting below the belt

Updated: October 11th, 2019, 09:14 IST
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The Reserve Bank of India (RBI) has lowered repo rate (the rate at which the central bank lends money to commercial banks) by a cumulative 135 basis points between February and October this year. This is believed to act as an antidote to the prevailing recessionary trend in the country. India’s growth rate has taken a heavy beating with nearly all sectors of industry going through a gloomy phase. Even though Indian economy began losing steam towards the end of 2008, along with world economy, it was somewhat insulated against global headwinds. However, the country gave in to slump more markedly following demonetisation in November 2016. A large number of medium and small enterprises shut shop, throwing lakhs of youths out of jobs. The government of the day never did anything significant to usher in a turnaround in the job scene. This took a heavy toll on public consumption. The shrinkage in consumer demand had its first victim in manufacturing companies. All RBI Governors until the incumbent refused to fully cooperate with the government by bringing down the interest rates. However, Governor Shaktikanta Das has not disappointed. The central bank, with Das at the helm, has been cutting interest rate to boost consumer demand. However, the reduction in interest rates by RBI has not had its desired effect. Banks have been rather reluctant to reach the benefits to the common man. The SBI, India’s largest bank, has passed hardly a quarter of the rate cut to its customers. Not to talk about other public sector banks.

Against this backdrop, the least that people expected from the SBI was that it would leave the savings bank (SB)  interest rates untouched. But the bank has chosen to do the reverse. It has cut the interest rates on savings accounts with balance up to Rs 1 lakh from 3.5 per cent to 3.25 per cent — a drop of 25 basis points. The reduced interest rates will be effective from November 1, 2019. The logic put forward by the bank for the reduction in interest rates is that there is enough liquidity in the system. The bank has also cut interest rate of retail fixed deposits (FDs) by 10 basis points for one year to less than two years’ maturity with effect from October 10, 2019. SBI had earlier linked the interest rate on savings account deposits with balance of over Rs 1 lakh to repo rate. Currently, it stands at 3 per cent. This is a complete U-turn by the SBI from its stance in August this year. Despite a repo rate cut by the Reserve Bank of India in August, the bank had stated that it would keep the interest rates on savings bank deposits unchanged. A release issued by the bank had said, “With a view to protecting the interest of savings bank depositors, State Bank of India has decided not to reduce the savings bank interest rate further and hold the same at the existing level of 3 per cent for customers with balances above Rs 1 lakh. Customers with SB balance up to Rs1 lakh will continue to get the rate of interest at 3.50 per cent as thitherto.  The cut in SB interest rates will hit the common man, especially lower and lower-middle class people the hardest. At a time when general expectations of people were on the line of a tax cut by the government, a cut in SB interest rates — a product largely patronised by the poor, senior citizens and the working class — in the festive time is tantamount to hitting them below their belt.

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