As banks lower lending rates, depositors will be hit, says Maharashtra Cong leader

Mumbai, Jun 9 (PTI) Lowering of lending rates by banks will reduce interest rates on deposits, which will hurt the middle class, the Maharashtra Congress said on Monday while demanding that the Reserve Bank of India and the Union government provide citizens protection.

As banks lower their lending rates, they are also certain to reduce interest rates on deposits, which means the common depositor, particularly retirees and middle-class savers, will bear the brunt once again, the Congress' state unit leader from the field of banking Vishwas Utagi said at a press conference.

"On June 6, the RBI announced its latest monetary policy, reducing the repo rate from 6 percent to 5.5 percent, a significant cut of half a percentage point. While many experts had anticipated a modest 0.25 percent reduction, the RBI has taken a more aggressive stance to accelerate the economy. Credit growth will get a boost but at the cost of depositors," Utagi claimed.

As per official data, India's GDP growth rate stands at 6.5 percent and the RBI expects inflation to remain below 4 per cent over the coming year, he said.

"In this context, a repo rate cut has been implemented to increase credit availability and stimulate economic activity. In addition, the Cash Reserve Ratio (CRR) will be reduced from 4 per cent to 3 per cent in four phases by December 2025, infusing an estimated Rs 2.5 lakh crore into the banking system. As a result, loans for housing, automobiles, education, and businesses will likely become cheaper," he said.

"However, as banks lower their lending rates, they are also certain to reduce interest rates on deposits. This means the common depositor, particularly retirees and middle-class savers, will bear the brunt once again. Declining purchasing power of depositors is a serious concern," Utagi pointed out.

Though public sector banks are considered safe for deposits, falling interest rates against rising inflation erode depositors' purchasing power, especially for senior citizens who rely solely on interest income after retirement, Utagi added.

"The RBI and government are systematically weakening the financial position of those who contribute to national savings, and there is no visible protection for depositors in the current policy framework. The RBI and Union government should inform where is the protection for small depositors and savers," he said.

The RBI and Centre must recognise the critical role of depositors, ensure their protection and restore confidence in the banking and financial system, he said.

Why do banks and the government prioritize large defaulters over honest depositors, Utagi asked. PTI MR BNM