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Aditya Puri: Don't Free Savings Rate In Crunch

Latha Venkatesh interviews Aditya Puri of HDFC Bank. He makes some excellent points. (Video, Transcript) Video is embedded below. (The transcript’s all wonky, see the video)

He doesn’t want the savings rate deregulated as long as there is a cash shortage – like right now. And going by that, he says that net-net, the savings rate will come down. I imagine it is true, and that savings rate junkies must consider that liquid funds currently return over 7% and there is really no reason to put lots of money in savings accounts. Getting (taxable) higher interest on savings accounts will only marginally help a few people; having said that the interest should be market determined, not kept at a constant 3.5%. And in the same way banks should be free to charge for services (ATM, cheques etc.) With competition, the nickel-and-diming might reduce, but as you see in the US, it still happens.

As a bank, HDFC Bank has had some insane growth rates – 30%+. Sorta like Axis. It still gets about 25 trailing P/E, which while being high for a bank, is probably ok for HDFC Bank given the strong growth.

  • Amit says:

    >The 7% liquid fund returns is a gross over-estimation. According to value research, 6 month average of liquid funds (including Ultra-short term debt i.e. liquid plus) is about 3.3%. 3 month average is 1.8%. 1 year average is about 5.65 %.

    Since this is very short term instruments we are talking about, longer term liquid fund return averages are not relevant.

  • Deepak Shenoy says:

    >Amit: Isn't VR returns for <1 yr non-annualized? The 3.3% = 6.6% annual, and 1.8%= 7.2% annual. The current return on a liquid fund (i.e. daily return, annualized) is about 7%.

  • Amit says:

    >That's right, my bad !!