New Delhi: The latest report of the country’s largest bank State Bank of India does not bode well for retail depositors. As per the report, retail depositors are earning negative returns on their bank deposits, and hence, there is a need to review the taxes on interest earned, SBI economists said.
What is the status of retail deposits?
In the note, SBI economists led by Soumya Kanti Ghosh pegged the total retail deposits in the system at Rs 102 lakh crore. Calling for a taxation review, economists said that if not all depositors, then at least the deposits made by senior citizens who depend on interest for their daily needs should be reviewed.
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Currently, banks deduct tax at source for all depositors while depositing interest income exceeding Rs 40,000, while tax is applicable for senior citizens if the income exceeds Rs 50,000 per annum. As the focus of policy has shifted to development, interest rates are going down in that system which stings the depositor.
“Clearly, the real rate of return on bank deposits has been negative for a significant period of time and with RBI making it abundantly clear that growth support is the primary goal, lower banking interest rates will soon move north. is unlikely as liquidity remains plentiful,” the note said. However, the current boom in financial markets may have changed the situation as households are likely to join the bandwagon of self-fulfilling prophecy of predicting a good return on their investment.
“Thus we believe, now is the opportune time to reconsider the taxation of interest on bank deposits or increase the exemption limit for senior citizens,” the note said.
Economists asked RBI to revisit the rule that does not allow banks to set interest rates according to age-wise demographics.
What are the terms of the bank?
According to news agency PTI, the note also revealed that banks are currently facing “significant margin pressure” due to excess liquidity in the system.
A back-of-the-envelope estimate suggests that the banking system’s core funding cost which includes the cost of deposits, negative carry on SLR (statutory liquidity ratio) and CRR (cash reserve ratio), and return on assets is currently 6. . percent, while the reverse repo rate is 3.35 percent. Additionally, if we add the cost of provisions to the core financing cost, the total cost comes to around 12 per cent, it said.
The note said banks are currently lending for less than 7 per cent for retail loans and have gone public with their preference for lending to high-end corporate borrowers, where lending rates are very competitive.
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