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— K. Murali Kumar

Derivatives demystified: (From left) Mr Vivek Kulkarni, Managing Director, Brickwork Ratings and visiting Professor, IISc, Bangalore; Dr K.C. Chakraborty, Chairman and Managing Director, Punjab National Bank; and Mr N. Balasubramanian, Chairman, Brickwork Ratings, at the conference on derivatives in Bangalore on Friday.

Our Bureau

Bangalore, Nov. 7 The public sector Punjab National Bank (PNB) has indicated the possibility of a further reduction in lending rates in the coming weeks.

Speaking to journalists here today, the PNB Chairman and Managing Director, Dr K.C. Chakraborty, said, “There is scope for further reduction. Our Asset Liability Committee is evaluating the situation.” Mr Chakraborty was speaking on the sidelines of a conference on Financial Derivatives, organised by Brickwork Ratings, a new credit rating agency, here.

While most banks had dropped their prime lending rates by 75 basis points, PNB had dropped it only by 50 basis points to 13.5 per cent. He said that interest rates, both for deposits and lending, are likely to move down. Mr Chakraborty though refused to specify the quantum of reduction. He said, “It all depends on inflation.”

Earlier, speaking at the workshop, he advised corporates against using exotic derivatives for hedging purposes. “Do not take financial derivatives unless the underlying risks are known.” He said corporates’ preference for derivatives should be decided on the ability to absorb losses rather than on the basis of probable gains.

Warning about the risks of derivatives, he said, “Derivatives are not tools for hedging. They are tools for hedging speculators’ risks.” The major problems in the current market are the high levels of volatility. Derivatives, he said, are only useful tools in a low volatility environment. In the current environment, he said financial derivatives are “weapons of mass destruction.”

More Stories on : Interest Rates | Public Sector Banks | Punjab National Bank

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