Last week’s decision by the Money and Credit Council is now affecting the ‘sight deposits’ which used to enjoy, in some banks or financial institutions, attractive rates of 22-24%, though the central banks had repeatedly announced such offers were illegal.
The banks violating the regulations have now been told to stop their deposit rate games, which had turned into a race for wooing more customers. The rate for call deposits has been slashed to 10% and long-term (one-year) deposits can offer only a maximum 20% interest.
But deposit contracts of many customers have not expired yet, and banks may continue to pay higher interest rates for a while, but as IRNA reported, customers who went to banks to open new accounts on Thursday were told that the whopping interest rates were no longer in effect. This sounded the death knell for high-interest call deposits.
Blanket Decision
The cut in interest rates, of course, applies to all saving accounts - be it a one-year deposit or a sight deposit. A member of the regulatory body of the MCC told IRNA that all short-term and long-term deposits are now affected by the ruling and thus no new deposits can be made into these accounts until their date of expiration.
“For instance, if an account was opened in October 2014, no withdrawal or deposit can be made until a full year passes by and then the new rates kick in”, the CBI official said. He added that while in the past, some banks continued to offer unconventionally high returns with impunity, an official decree from the CBI should now set the record straight. “The new decision makes it clear that all customers should lock in their money for a specific time but the only exception comes for short-term deposit accounts whose holders can still withdraw from their accounts”.
On Tuesday evening, the regulator lowered the cap on interest rates offered by banks, in a bid to boost business lending. After being pushed by various groups to increase business financing, the MCC reduced the cap on one-year deposit interest rates by 200 basis points to 20%. The decision will be binding for all commercial banks from May 5. The council also lowered the ceiling on lending rate to 24% from of 27-28%.
