The report also indicated that the low rate of interest is likely to continue in the near future.
“With the RBI making it abundantly clear that while supporting growth is the primary goal, lower banking interest rates are unlikely to move north, as liquidity continues to plentiful. This means the current bullishness in financial markets. It may have been a break from the past as families would have gotten involved in the self-fulfilling prophecy of a good return on their investment.
The SBI report said that now is the opportune time to reconsider the taxation of interest on bank deposits, or at least increase the exemption limit for senior citizens.
Currently, banks deduct tax at source while depositing interest income exceeding Rs 40,000 for all depositors, while tax is prescribed for senior citizens if income exceeds Rs 50,000 per annum.
The report said the RBI may also reconsider the regulation that does not allow banks to set interest rates according to age-wise demographics.
Meanwhile, the note also said that banks are currently facing “significant margin pressure” due to excess liquidity in the system. Further, banks may find it difficult to maintain their deposits, especially in view of outflows in galloping equity markets and opening of bonds to the general public, both of which guarantee better returns, the report said. , stated in the report.
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