New Delhi: In a bid to encourage people to open savings account, Kotak Mahindra Bank raised interest rate on deposits. Following the deregulation in the saving deposit rates by the Reserve Bank of India (RBI), the Kotak Mahindra has declared spike in interest rate.

As per the new rates, the Kotak Mahindra will give interest of six percent per annum on deposits above Rs 100,000 and 5.50 percent interest for that up to Rs 100,000. Up till now, only 4 percent interest rate on an amount up to Rs 200,000 lakh was given.

The decision to raise the interest rate came after the RBI reviewed quarterly reports of the monetary policy and authorized private banks to set interest rate on amount above Rs 100,000. Till now, Yes Bank and Kotak Mahindra have adopted the new formulation and have increased the interest rate by 50 percent.

One of the major banks of the country, the State Bank of India (SBI) stated that it will not adopt new interest rate till other prominent banks follow the same. According to SBI officials, high interest rate to small deposit holders will raise the operation cost of the bank.

Experts say small banks have less percentage of saving account holders as of which they are following the new policy to attract the masses. It is also expected that in case of increased interest rate, banks will charge extra fees for operating the accounts.