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In a surprise gift to depositors, the Reserve Bank of India announced the pathbreaking deregulation of rates on savings deposits, which had been talked about for a year.

Announcing the 13th rate hike of a quarter per cent since October 2009 in Tuesday’s Second Quarter Review of Monetary Policy 2011-12, the RBI governor, Dr D. Subbarao, said this would be a boon to the economy and “friendly to the low-income households”.

Deposits of 1 lakh and below would be offered a uniform rate on savings deposits whilst bankers would be free to charge differential rates on deposits of above 1 lakh.

But it continued its hawkish stance on interest rates that will make EMIs on home, auto and other loans costlier.
The RBI raised the key interest rate by 25 basis points from 8.25 per cent to 8.50 per cent, the 13th hike in 20 months. The repo stands at 8.5 per cent and reverse repo would be 7.5 per cent.

Within a few hours of the announcement, YES Bank raised its savings deposit rate for all savings accounts by two per cent to six per cent. Dr Rana Kapoor, founder, managing director and CEO, said, “Alignment of savings rate to the market rates will accelerate greater financial inclusion of the unbanked and underbanked and also augment a higher savings propensity to a 42-44 per cent level from the current level of 34 per cent, thereby creating a savings multiplier effect.” Another welcome announcement was increasing the individual housing loan limit from `25 lakhs to `30 lakh for Tier 1 urban cooperative banks and from `50 lakh to `70 lakhs for Tier II UCBs. The maximum repayment period of housing loans was enhanced by five years to 20 years.

-dc