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`Ministry, banks must find middle path on rates'

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MR N. VAGHUL
MR N. VAGHUL

The Finance Minister, Mr P. Chidambaram, has asked PSU banks to keep rate hikes in abeyance. Hence, banks might have to roll back hikes that were announced recently.

Industry veteran Mr N. Vaghul believes that the Finance Minister is concerned about the higher interest rates scenario. He feels that banks and the Finance Ministry need to find a middle path. Excerpts of CNBC-TV18's exclusive interview with Mr N. Vaghul

How would you read this? Given the realities of the market today, would you say it is a regressive step?

I have not seen this news item. But if what is said is true, then it is interesting to note that the Finance Ministry is concerned about the higher interest rate scenario. The Reserve Bank of India is concerned about inflation and banks are concerned about their net interest margin.

We had a period of two years where there was a happy convergence of these three factors but today there is a divergence. We have to find a centre point in all these three points of difference and somehow work things out.

Can there be a centre point; because the rates are hardening across the world, they probably need to harden in India as well? What can be a middle point for banks?

I look at it not only from the point of view of someone who is connected with the banking industry but also as a person interested in economy. I had gone through this period of high interest rates in the mid 90s and have seen what damage it could do to the economy. I do not want this to happen again.

All banks have businesses to run and they need to raise rates because of that. Does the government really have a right to step in and stop them from doing so?

I'm not sure of what the government had said as I haven't seen the facts. But I agree that the government cannot give a direction on this front for banks. It is mockery of autonomy.

(This article was published in the Business Line print edition dated August 5, 2006)
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