Financial Daily from THE HINDU group of publications
Wednesday, Aug 31, 2005
Financial Daily from THE HINDU group of publications Wednesday, Aug 31, 2005 |
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Interest Rates Money & Banking - Fixed Deposits Industry & Economy - Economy Bank deposit rates need to be raised: Rangarajan Our Bureau
CORRECTING THE MISMATCH: Dr C. Rangarajan (right), Chairman, Prime Minister's Economic Advisory Council, with Mr Prabir Sengupta, Director, Indian Institute of Foreign Trade, at a banking symposium `Designing the global financial strategy' in the Capital on Tuesday. - Ramesh Sharma
New Delhi , Aug. 30 THE Chairman of the Prime Minister's Economic Advisory Council, Dr C. Rangarajan, today called for upward adjustment in the rate of interest offered on deposits of banks. The former Reserve Bank of India Governor called for a review of the "fractured" interest rate structure on mobilisation of resources even as he referred to the mismatch between the interest rates on deposits of banks and the higher administered rates on competing instruments such as small savings. Addressing a banking symposium on `Designing the Global Financial Strategy' here today, Dr Rangarajan highlighted that the real rate of interest is not positive for most maturities (of deposits) and this needed correction with upward adjustment. He also came up with a plausible reason as to why banks have projected a slow down in the growth rate of deposits for the current fiscal. Dr Rangarajan highlighted that there has been a decline in inflation rate in the current fiscal year as compared to last year. He felt that this should be taken into account while making any judgment on the growth rate of deposits. "With the real income growing at the same rate, the nominal income growth will be lower with lower inflation and this will have an impact on deposit growth," Dr Rangarajan said. His comment on the issue of slow down in growth of deposits of banks comes a few days after the Finance Minister, Mr P. Chidambaram, expressed concern on how public sector banks could project deceleration in growth in deposits and advances if the rate of growth of the economy is maintained at 7 per cent. The Finance Minister had on Saturday last told the Annual General Meeting of the Indian Banks' Association (IBA) that some frontline public sector banks have projected a lower growth in deposits and advances for the current fiscal as compared to the previous year. In his address, Dr Rangarajan noted that the first stage of the banking sector reform had come to an end. He said that the thrust of the second phase of reform would have to be on improvement in the organisational effectiveness of banks and other financial entities.
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