Business Daily from THE HINDU group of publications
Friday, Jul 03, 2009
ePaper | Mobile/PDA Version | Audio | Blogs
Business Daily from THE HINDU group of publications Friday, Jul 03, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Opinion
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Letters Monetary Policy at the crossroads This refers to the article “Monetary policy at the crossroads” (Business Line, July 2). There is a paramount need to reduce the interest rates of bank loans and reduce the cost of funds in the economy to boost investment and production, but the fact remains that banks are not in position to effect any reduction in interest rates due to some compelling reasons. Their Net Interest Margin hovers around 3 per cent which they do not want to touch what ever may be the compulsions. Historically, banks get subsidised by depositors and the government and the borrowers get subsidised by all stake holders. The prime lending rates and benchmark prime lending rates do not seem to have been arrived at on a scientific basis and their alignment with Wholesale Price Index and Consumer Price Index is a far cry. There is a close correlation between high interest rates and non-performing advances. The good borrowers have to necessarily take care of the losses arising out of bad loans. Monetary policy has its own limitations in reflecting on the lending rates of banks due to various reasons, the prominent among them being prevalence of administered interest rates in respect of certain segments and the inability of depositors to find alternative avenues of investment. T. V. Gopalakrishnan e-mail More Stories on : Letters | Monetary Policy
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