RBI Governor Not In Favour Of Interest Rate Cut
I fully concur with opinion of RBI governor Mr. Raghuram Rajan who says that reduction of interest or giveaways to corporates are not the only tools for Credit Growth or for growth in economy . There is limit for RBI or for any Government to give relief to business houses in interest and if we go beyond it, or if we cross the limit , it will be disincentive to silent savers and it will have adverse affect on savings and investment environment in the country . High value savers have already shifted their savings from banks to other pockets like real estate, gold, stock markets , commodity market or in Swiss Banks.
But the bitter truth is that business houses are not leaving any stone unturned to build pressure on RBI for lowering of interest rate. Politicians of all colour and creed who do not understand the intricacies of the economic principles or who do not want to understand it wilfully to serve their political agenda are time and again putting pressure on RBI to lower interest rate. Finance Ministers during UPA rule or now in NDA rule are thinking in the same fashion that only lowering of interest rate may cure the sick banks and may give a boost to economy. As if interest is panacea for all ailments.
Politicians do not try to understand that if banks are forced to reduce interest rate on loans and advances, they will have to lower interest rate they pay o deposits which they receive from savers. And if savers particularly pensioners or person whose livelihood depend on interest will face greater difficulty if interest rates are lowered on their savings. They will be forced to put money for higher interest with local money lenders or Chit fund companies or NBFC . This will definitely erode the deposit base of lending banks and hence deplete their lending capacity. When their resources will shrink, they will naturally will not lend or try to borrow money from RBI or other costlier sources. This will further cut their capacity to lower rate or cut their net interest margin and finally cut their profits.
Further , continuous rise in bad debts is causing banks greater pain and erosion in their interest income. Volume of bad debts has been consistently increasing in all banks due to various reasons. Banks are constrained to write off loans and interest . Again their profit and capital gets eroded. If their profitability get eroded further by interest cut , health of banks will further deteriorate. RBI Governor is therefore perfectly right in not lowering interest rate . He is right in saying that only Stimulus to business houses cannot help in giving a boost to economy.
After 2008 financial crisis is USA , India claimed that US crisis had not impacted Indian economy. Still the then UPA Government gave away hundreds of crores of rupees to Corporate houses in various forms of subsidy. Government advised banks to give all relief to business houses without ascertaining the fact whether the business houses were affected by US crisis or not. GOI allowed Public Sector Banks to give interest concessions as per their whims and fancies and allowed them to restructure bank loan if the same was irregular to stop slippages in NPA category.
Previous Government inculcated a wrong culture in minds of bankers who used this tactics to conceal all bad loans . This is one of prime reasons that ratio of gross NPA and that of stressed assets in PSBs have grown to such a large extent. Stimulus allowed by banks and GOI to corporates after 2008 crisis were as good as Jugaad tools used by UPA government , but they did not yield an fruitful result , rather they damaged the sound economic health of the country. This happened despite opposition by the then RBI Governor Mr. Suba Rao.
It is good luck that RBI Governor Mr. Rajan has understood the main problem public sector banks are facing and hence he is trying to prescribe proper medicine and not sticking to 'Jugaad' tools as suggested by clever politicians .He does not believe in temporary solution and neither does he believe in artificial or manipulated growth of banks. He does not want window dressing . He does not want bankers to book higher profit by window dressing . He does not want that banks should hide bad loans , he does not want banks to reduce provisions by fraudulent measures and he does not want banks to boost profit by fraudulent methods.
Let us see how far Mr. Rajan gets success in his Utopian ideas. I say Utopian because I know the nature, attitude and character of Indian politicians.
But the bitter truth is that business houses are not leaving any stone unturned to build pressure on RBI for lowering of interest rate. Politicians of all colour and creed who do not understand the intricacies of the economic principles or who do not want to understand it wilfully to serve their political agenda are time and again putting pressure on RBI to lower interest rate. Finance Ministers during UPA rule or now in NDA rule are thinking in the same fashion that only lowering of interest rate may cure the sick banks and may give a boost to economy. As if interest is panacea for all ailments.
Politicians do not try to understand that if banks are forced to reduce interest rate on loans and advances, they will have to lower interest rate they pay o deposits which they receive from savers. And if savers particularly pensioners or person whose livelihood depend on interest will face greater difficulty if interest rates are lowered on their savings. They will be forced to put money for higher interest with local money lenders or Chit fund companies or NBFC . This will definitely erode the deposit base of lending banks and hence deplete their lending capacity. When their resources will shrink, they will naturally will not lend or try to borrow money from RBI or other costlier sources. This will further cut their capacity to lower rate or cut their net interest margin and finally cut their profits.
Further , continuous rise in bad debts is causing banks greater pain and erosion in their interest income. Volume of bad debts has been consistently increasing in all banks due to various reasons. Banks are constrained to write off loans and interest . Again their profit and capital gets eroded. If their profitability get eroded further by interest cut , health of banks will further deteriorate. RBI Governor is therefore perfectly right in not lowering interest rate . He is right in saying that only Stimulus to business houses cannot help in giving a boost to economy.
After 2008 financial crisis is USA , India claimed that US crisis had not impacted Indian economy. Still the then UPA Government gave away hundreds of crores of rupees to Corporate houses in various forms of subsidy. Government advised banks to give all relief to business houses without ascertaining the fact whether the business houses were affected by US crisis or not. GOI allowed Public Sector Banks to give interest concessions as per their whims and fancies and allowed them to restructure bank loan if the same was irregular to stop slippages in NPA category.
Previous Government inculcated a wrong culture in minds of bankers who used this tactics to conceal all bad loans . This is one of prime reasons that ratio of gross NPA and that of stressed assets in PSBs have grown to such a large extent. Stimulus allowed by banks and GOI to corporates after 2008 crisis were as good as Jugaad tools used by UPA government , but they did not yield an fruitful result , rather they damaged the sound economic health of the country. This happened despite opposition by the then RBI Governor Mr. Suba Rao.
It is good luck that RBI Governor Mr. Rajan has understood the main problem public sector banks are facing and hence he is trying to prescribe proper medicine and not sticking to 'Jugaad' tools as suggested by clever politicians .He does not believe in temporary solution and neither does he believe in artificial or manipulated growth of banks. He does not want window dressing . He does not want bankers to book higher profit by window dressing . He does not want that banks should hide bad loans , he does not want banks to reduce provisions by fraudulent measures and he does not want banks to boost profit by fraudulent methods.
Let us see how far Mr. Rajan gets success in his Utopian ideas. I say Utopian because I know the nature, attitude and character of Indian politicians.
No comments:
Post a Comment