11th Depositors Association (AIBDA) Demands to Freeze the Deposit Rates - 11th BPS News


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Thursday, 18 June 2020

Depositors Association (AIBDA) Demands to Freeze the Deposit Rates

The All India Bank Depositors Association (AIBDA) has demanded to freeze the Deposit rates to pre COVID levels.

AIBDA fears that depositors would be most severely hit if borrowers get waiver of interest during the Covid-19 lock-down-related moratorium period on COVID relief loans. 

They thinks that if interest waiver is allowed, banks would inevitably seek to cover their potential or actual loss of interest income through further cutbacks in the deposit interest rates.
If banks do not charge interest from their borrowers during the period of moratorium, it would be difficult for them to honor their obligation to depositors. This would tantamount to violation of Section 22(3) of the Banking Regulation Act, 1949, which protects payment of interest due to the depositors. This may have far-reaching consequences,” cautioned the AIBDA. 

The AIBDA’s observations come in the backdrop of a public interest litigation (PIL) being admitted by the Supreme Court seeking an interest waiver during the period of moratorium in the context of the lock-down. 

AIBDA, said: “Historically, loan/interest waivers have happened only during extreme economic setbacks, and the sovereign has adequately covered that. However, during the current year, there will be an unprecedented shortfall in revenues, both at Center and State levels, due to the lock-down. Hence, the government’s fiscal position will not permit a sovereign cover for the waiver of interest.” It is observed that if banks are not compensated, some may even go for liquidation. There may be serious disruption in the process of financial inter mediation. 

The Association underscored that banks have reduced their deposit rates dramatically during the recent period, which is not only applicable to new deposits but also to all deposits due for renewal. 

The real return on deposits has become negative during the last several months as against a positive real return of 2 per cent recommended by several Committees in the past. 

The AIBDA impressed upon the RBI that blanket and indiscriminate waiver of loan interest is going to be detrimental to the health of the banking industry as well as to fiscal prudence.

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