Bank depositors oppose repo as benchmark for savings accounts

Bank depositors have urged RBI governor Shaktikanta Das to reconsider allowing banks to use the repo rate as a benchmark for interest on savings account. The association has also asked Das to direct banks to remove the restriction on digital transactions in basic bank accounts which includes Jan Dhan Yojana accounts.

The All India Bank Depositors Association met with Das on March 26 as part of the governor’s pre-policy engagement with customers. They pointed out that banks were violating RBI’s directive to automatically offer senior citizen rates when the customer turns 60. “It is legitimate and fair that senior citizens, who have been deprived of the benefit of higher interest rate from the time it was due to them, must be compensated retrospectively for the monetary losses they might have suffered,” the association said.

In the meeting, Sunil Bhandare, president of the association, said that they were evaluating the impact of SBI’s move to link high-value deposits to the RBI’s repo rate. “The softening repo rate trend invariably creates a major challenge for bank depositors. They have to bear a brunt of the repo rate reduction given a virtual pari passu (ranking equally) reduction in deposit rates,” Bhandare said in his presentation to the governor. He pointed out that a drop in the consumer price index does not signify fall in actual prices of goods and services the depositor buys from the market. However, his nominal income from bank deposits drops immediately.


As an alternative, the association has suggested that banks could use the average of the CPI inflation rate for the past 12 months or the weighted average of inter-bank call money rate plus Treasury Bills rate plus five-year bond yield.

Banks have opened over 35 crore basic bank accounts under the Jan Dhan Yojana scheme. These accounts have zero balance requirements and banks are now allowed to impose charges for services. Banks have also been asked to permit five minimum withdrawals a month. Banks, however, have interpreted this to mean five debits into account and many are freezing the accounts after five transactions while some are converting the accounts into regular accounts with minimum balance requirements and other charges.

“After four debits in a month from a BSBDA, the customer would no longer be able to make online purchases, transfer money through BHIM or use the RuPay debit card at merchant locations for his dayto-day purchases. Inhibiting the financially included citizens to transact digitally through their bank accounts surely hurts the progress of the country’s digital payments drive. The very nature of the RBI regulation has forced banks to limit the BSBDA usage,” Bhandare said.