Rajan Bajaj@rajan_bajaj
Many of you have been asking how slice can give 100% of RBI’s repo rate on savings when most other banks offer only 2.5%. And whether it is sustainable?
Here’s the answer and why it matters:
It’s true that most banks give customers only 2.5% interest rates on money parked in savings accounts.
The risk-free cost of money in India is what the government pays on its securities – treasury bills of 3 months or 12 months. The repo rate set by RBI during monetary policy meetings broadly aligns with this. Any return below the policy rate usually reduces the value of your money.
If you want this risk-free return as a consumer today, you can't easily get it through a simple bank account. You'd have to invest in mutual funds that park money in government treasuries, but that's not very simple.
We're bridging this gap. Customers should be able to access the true value of their money through something as simple as savings account. We're providing the returns that government securities offer plus the simplicity and instant access of a bank account.
As a bank, we earn through lending. Our idle funds stay at or near this risk-free cost of money. When we lend, we earn a spread on top of that. The difference is how we do it. Technology keeps our operating costs low. We’ve learned how to be efficient from some of the best banks globally and are applying those learnings to India’s unique geography and regulatory framework.
We expect a long-term positive impact on net interest margins. For a typical bank, savings account balances are the smaller portion of deposits, 60-70% of retail deposits are in fixed deposits with higher rates. The transparency and fairness we bring means customers are choosing to keep more money in savings accounts with us. This leads to a better cost of funds for us.
Most consumers in India don't realize that leaving money in their savings account can be detrimental to their wealth. When banks don’t offer inflation-beating rates, customers are essentially losing purchasing power every single day.
Most importantly though, they also don't realize that they should expect more from their banks.
Traditional banks have been giving depositors just 50% -- if not lower -- of the RBI repo rate for decades, and we've accepted it as normal. That's not right. Customers in India lose more purchasing power from some ~$800 billion sitting in low-interest savings accounts than they do from the ~$400 billion of physical cash in circulation.
The repo rate represents the true cost of money in our economy – why should savings customers get only half of that? This isn't just about customer acquisition, though transparency does attract customers. It's about establishing a new baseline for what banking should be. When you make people understand that their ₹10,000 should earn ₹600 annually instead of ₹275 (and we deposit the earned interest daily), you're not just giving them better returns – you're telling them to value their money differently.
The digital-first approach naturally enables both urban and rural penetration at lower costs than traditional models. But the real purpose is simple: demonstrating that banking can be both profitable and fair.
