Apprehensions regarding the rate cut on savings deposits are unfounded. Funds parked in savings accounts are liquid, to meet immediate expenses and contingencies. Customers hold a minimum balance in savings accounts; banks have sweeping savings accounts, where amounts above threshold levels get automatically converted to a floating deposit attracting applicable interest rates. Savings rate was the only regulated interest rate and due to popular demand, it was deregulated.

The rate cut on term deposits has to be dynamic and pragmatic. Senior citizens and pensioners should be given immunity up to a certain level to guard against deflation and price inflation.

The RBI and the Government should mandate banks to offer a discounted interest rate on deposits of corporates parking excess funds. This will subsidise the interest rate offered to senior citizens. When the economy is liberalised and pricing is market-driven, it is unfair to expect banks alone to take deep cuts.

S Veeraraghavan

Coimbatore

Indecent propositions

This refers to your editorial, ‘Unkindest cut’ (August 7). Public memory may be short. But those who keep their savings in banks they trust cannot be expected to forget why they chose bank deposits as an instrument of savings, nor can they be taken for granted. The move has particularly affected the elderly and the high networth salaried class who maintain huge balances in savings accounts.When the RBI deregulated interest rates on savings accounts in 2011, these banks made a mockery of the regulator’s guidance by either just ignoring the RBI circular or making new stipulations and fixing new thresholds for payment of interest, ensuring status quo in outgo on account of interest payments.

The message is has been loud and clear. Savers will remain at the mercy of banks. To add insult to injury, banks bargain for reduction of interest rates on savings instruments with long-term maturities outside the banking system as a pre-condition for reduction in lending rates following reduction in bank rate. This indecent challenge from banks which have a monopoly over rural and semi-urban savings has long-term implications. These include savings migrating to non-financial sectors and the traditional moneylender resurfacing.

MG Warrier

Mumbai

Too much uncertainty

This refers to ‘For a context-based monetary policy’ by Ashima Goyal (August 7). We cannot dispute the fact that the Government recently initiated a lot of structural changes in the economy in terms of implementing GST, banking sector reforms, encouraging startups, etc. But the uncertainty lies in the impact these policy measures would have on the economy in the days to come, especially on employment generation, productivity, etc. The biggest risk to the economy is the rise in bad debts of banks. The slowdown in the economy measured in terms of GDP in recent times led to a rise in bad loans or NPAs which pose a huge challenge in terms of activating and sustaining economic growth. The recovery process is expected to be time-consuming.

The poor fiscal condition of States and their increased dependence on borrowings, farm loan waivers, etc, have further aggravated the problem. When such domestic and other global factors are in play, it is difficult for the RBI to change its stance from ‘neutral’ to ‘accommodative’. With so much uncertainty surrounding the outcome of the structural measures initiated, changes in the statistical technique used in forecasting may not help.

Srinivasan Velamur

Chennai

Erratum

In the report, ‘Regulations in auto sector still evolving in India, says McKinsey’ (August 7), the power units associated with the dollar value mentioned with regard to battery-powered vehicles were inadvertently omitted. The relevant information is as follows: “The total cost of ownership of a battery powered vehicle was $1000 per kwh in 2010 which has now come down to about $200 per kwh and is expected to further go down to $100 per kwh between 2020-2025.” The error is regretted.

Related Topics
comment COMMENT NOW