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The RBI’s move to cut CRR by 50 basis points ahead of its monetary policy will help to ease banks’ liquidity but, as pointed out by various reports, it is early to comment its impact. Banks are also busy mobilising deposits, apart from offering special schemes such as deposit of 333 days, 500 days and so on. This is in stark contrast to what was prevalent at the last annual closing, when every bank was interested in its profitability.

An immediate question that comes to one’s mind is what happens to loans to entities given at low rate of interest, below or on par with the prime lending rate of each bank?

When we talk of the US financial crisis, apart from our domestic concerns over the fallout of current developments, it is also a moot point what will happen to credit availability to the needy sectors and small enterprises that are always under-fed financially.

It is necessary, in the present context, for banks to chalk out a clear-cut policy as to restrictive and thrust lending, in keeping with the RBI’s proactive approach. It is essential to curb unnecessary and risky ventures and, as pointed out by the Finance Minister recently, banks should concentrate on their prime business.

B. N. Iyer Chennai

More Stories on : Letters | CRR & Bank Rates

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