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impact of the deregulation of savings bank rates will be on short-term deposits. Usually, banks offer savings account interest rates on short-term and ultra short-term deposits. A rise in the interest rates on savings bank deposits means the interest rates on these short-term deposits will go up too, especially on the higher amount deposits. A rise in the interest rates on short-term deposits will push up the yields from liquid deposits and investments. However, in percentage terms, the interest rates are not expected to go up very significantly. Therefore, it will not be a meaningful gain for small and individual investors. Yet, a small hike in the interest rates will result in more gains for high net worth individuals (HNIs) and the corporate sector due to their larger deposits and investments. Higher cost for banks The deregulation of savings bank deposit interest rates is expected to put additional cost pressures on banks and thereby impact their profitability. Analysts believe banks are likely to offset the impact of this increase in interest costs partially by levying transaction and service charges on bank accounts. Also, banks may pass on some of this additional cost to their loan products. Analysts believe banks will raise interest rates across the board after the recent hike in the repo rate by the Reserve Bank of India (RBI). Debt instruments attractive Debt instruments are looking more attractive in the current market conditions as their yields have gone up due to the interest rate hardening. On the other hand, volatility in the stock markets and changing outlook of the corporate sector have tilted the risk and returns equation towards risk for equitybased investments. Therefore, it is recommended that individual investors (especially with a short to medium-term horizon) should review the various aspects of their investments such as objective, horizon, risk appetite etc, and make the required changes in their portfolios to ensure balance between risk and returns. Rising cost for borrowers The interest rates on various loan products are bound to go up after the recent rate hike by the RBI. Some banks have already announced they will be increasing their loan rates shortly. The rate hike will not pinch much in case of small quantum and short duration borrowers as they can manage the higher interest rates by increasing the loan tenure, and keep their monthly EMIs unchanged. On the other hand, a higher interest rate is bad for borrowers with large loans as they are bound to pay more in terms of increased EMIs. It is recommended that borrowers remain regular in their EMI payments. One can discuss with the bank in case of difficulties in paying a higher EMI.
. “Banks are free to determine their interest rates on both savings deposits and term deposits of maturity of one year and above under non-resident (external) rupee deposit accounts and savings deposits under ordinary non-resident accounts with immediate effect.RBI allows co-op banks to fix NRE deposit rates RBI has allowed cooperative and primary urban cooperative banks to fix interest rates on various non-resident deposit schemes. It had also put restrictions on rupee forward contracts to check speculation in the forex market. a move intended to attract more funds from NRIs and to arrest the slide in the rupee in the forex market. The rate deregulation on NRE and NRO deposits is intended to make such deposits more attractive at a time when the rupee has depreciated sharply during the past few months. RBI said. Extending the ambit of its recent decision to deregulate deposit rates.” Earlier this month. the apex bank freed interest rates on various non-resident deposit schemes by scheduled commercial banks.