FM to meet bank Chiefs on 3rd July

It is heartening to note that the FM has finally realized that banks do not transmit the monetary policy in letter and spirit. Banks have failed to respond to the Reserve Bank's and the Government's call to reduce the lending rates to various categories of borrowers is a fact which has been brought out by many from the academic and finance circle.  Unfortunately  the Government ignored the call of the Reserve Bank and banks have been given directly and indirectly the freedom to act in their own way.. The banks' NIM has been on the very high side by any reckoning and the economic conditions of the country do not envisage to have a such high NIM at the cost of borrowers and other stake holders of banks. The deregulation of SB rate of interest has not made any impact and banks have merrily ignored deposit customers all along and found favor with borrowed funds to do banking business ignoring the domestic economic conditions which need maximum mobilization of domestic resources. The major banks particularly SBI have been harping on reduction of CRR to have access to funds kept in RBI ignoring the spirit behind the regulatory requirement and having obtained the reduction in CRR of 200 basis points and policy rate reduction of 130 basis points, they did not care to pass on the full benefits to the borrowers. The result is that even good  borrowers failed to repay the loans and go in for fresh investments causing the economy to suffer. The banks failed to cooperate with RBI is a fact and this has affected the economy in different ways. Savings in banks have come down, savings have been diverted to other assets, NPAs have increased,  productive loans have fallen down and all stakeholders who include the GOVT, the economy, the depositors and borrowers have suffered in the process. The FM will do well if he can make the bankers to work in the interest of the economy sacrificing a bit of their craze for profit and enhanced bonus and productivity rewards.

Dr.T.V.Gopalakrishnan

( This is in response to the news item Chidambaram may back borrowers in July3 meeting with bank Chiefs that appeared in Business Line dated 24/6/13) .