The report also hinted that the low rate of interest is likely to continue in the near future.
“With the RBI making it abundantly clear that supporting growth is the primary goal, the low banking rate of interest is unlikely to make a north bound movement anytime soon as liquidity continues to be plentiful. This implies that the current bull run in financial markets is possibly a break from the past as households may have got into the bandwagon of self fulfilling prophecy of a decent return on their investment,” the SBI report said.
The SBI report said that it is now the opportune time to revisit the taxation of interest on bank deposits, or at least increasing the threshold of exemption for senior citizens.
At present, banks deduct tax at source at the time of crediting interest income of over Rs 40,000 for all the depositors, while for senior citizens the taxes set-in if the income exceeds Rs 50,000 per year.
The RBI can also relook at the regulation that does not allow interest rates of banks to be determined as per age-wise demographics, the report said.
Meanwhile, the note also said that banks are facing “significant margin pressures” at present because of the excess liquidity in the system. Moreover, it may be tough for banks to retain deposits with them going forward, especially in the wake of outflows to the galloping equities markets and opening of bonds to the general public, both guaranteeing better returns, the report said.
(With inputs from agencies)
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