by

Rajesh Goyal

Thank God, I am still not senior citizen and eligible for higher rate of interest.    But still, I was shocked when I read the news item "SBI ups Deposit Rates, but Not for Senior Citizens".   Initially I thought that it is one more aberration by Mr Chaudhary's bank.   Mr Chaudhary has remained in controversy for last few months like  - Seven days banking, Abolition of CRR etc., and thus I thought it may be again well thought strategy to remain in headlines.   I was in bigger shock when I read that Mr Kamath's  PNB too has followed blindly in to the footsteps of Mr Chaudhary.   May be now more will follow as in Indian banking industry we have herd mentality (in Hindi we call 'bhed chal').  Some top officers who would have offered this suggestion to Mr Chaudhary must be patting on their back and telling CMD - See our foresight, others like PNB  are following us, and we are the leaders.  They seem to have forgotten the 'bhed chal', where  when one sheep jumped  from the bridge and disappeared and ultimately got drowned, all other sheep followed her without watching where that route leads to and all of them got drowned.     In Indian banking industry we have great sheep followers. 

Have the officers incharge of fixing Rate of Interest  in these two banks have done any analysis before arriving at this decision ?  Did CMDs of these banks raised any questions when such notes were placed?  I have serious doubts about this.   Let us do some analysis and its impact.

All PS Banks are still paying 4% on their Saving Fund deposits.  The CASA (in %age terms) is falling in almost all such banks and small banks like Yes Bank are showing phenomenal growth in CASA deposits.  Thus banks like SBI and PNB are more and more relying on their term deposits.   Surprisingly, the Saving Bank interest of banks like Yes Bank are even more than the Fixed Deposit Interest Rates for upto 6 months / 1 year for PNB /SBI.    The young generation is already fed up with the services of PS Banks and are slowly shifting to private sector banks like ICICI Bank, HDFC Bank and now Yes Bank and Kotak who are attracting with higher rate of interest in SF deposits.    In nutshell, high networth youngsters have already shown thumbs down to PS Banks.   Slowly, the percentage of Saving Fund holders in PS Banks will be only of people who are poor or have limited savings.

Anybody will vouch that the core strength of banks like PNB and SBI,  are the elderly people who still are afraid of shifting to private sector banks due to their perception that the charges of such banks are higher or  or they are elite banks.   Pension holders who are mostly senior citizens are one such group who owing to their pension accounts being in PS Banks still remain attached with PS Banks.    Now with this single move of reducing the differential rate of interest for senior citizens, SBI and PNB have earned the wrath of senior citizens,    I am sure bankers are well aware that for senior citizens even difference of 25 bps really matters as  they count each paise they receive as interest income.  

Soon bankers  from such PS Banks who ignore senior citizens, will see that  senior citizens will come to branches and curse the Bank and Branch Manager for reducing the rates applicble to them.   They will talk about these in their groups and looking for banks who are paying higher differential rate of interest to senior citizens.    Thus, I feel by this single move by SBI and PNB will do much more damage to the reputation of SBI and PNB  than they will be able to save through reduced  25 bps for senior citizens. 

Readers will remember that differential rate of interest was introduced when it was felt that due to inflation, senior citizens are the biggest sufferers as they have limited income and most of them are dependent on interest income on their savings.   In this era of high inflation, even FM has given no additional concessions in the latest Union budget to senior citizens, and with the likely fall in interest rates, the sufferings of elderly people is likely to increase.   It appears that for everyone, elderly people are the soft targets.   Now SBI and PNB have ditched senior citizens.  

I think this is a great opportunity for private sector banks like Yes Bank to increase the differential rate of interest for short period to 75 bps and gain confidence of senior citizens with let big tickets fixed deposits shifted from PS Banks.   I am sure rich retired general public (not retired bankers, who may not shift of 1% extra staff rate)  will certainly shift to such banks if they find rate of interest for them is higher.   Banks like SBI and PNB, who are already fighting losing battle to keep their CASA percentage intact will soon  realise that their faithful fraternity of elderly people also starts slipping.   Today Banks lead by Mr Chaudhury and Mr Kamath have ditched senior citizens, tomorrow it may be senior citizens who decide to ditch SBI and PNB.

I can only wish Good Luck to Mr Chaudhury and Mr Kamath and their Policy making team  (who do not understand the psychic of Indian elderly persons)  that they should be able to steer their ships smoothly at least till their tenure.  I am not sure, now what group of people they are targetting - may be middle aged or people who have no alternatives !