It is not often that a top official from Reserve Bank visits Coimbatore. So, when RBI Deputy Governor K. C. Chakrabarty did, industry representatives prepared a memorandum, highlighting the importance of their respective sectors, and appealed for a reduction in interest rates.
Little did they expect Chakrabarty to ask them, albeit mildly: “Instead of blaming banks for high rates, why don’t you apply for a bank licence?”
Stating thus, he pointed out that interest rate is a function of inflation. “The rates are high not because the RBI has increased them, but because inflation is high. When inflation comes down, so will the rates,” he added.
On noticing that the audience were not convinced with his reply, he asked them what rate will they consider ‘reasonable’ on their deposits.
Pat came the reply: “Ten per cent.”
“So, when you expect 10 per cent on deposits, how can you expect the bank to lend at a much lower rate than that?” he asked, and silenced them on their demand for a lower rate.
Chakrabarty also emphasised that the ones that got bank finance were a privileged lot as the cost of funds from alternative channels was far higher.
Subsidy issueHe further advised the group of industrialists, who sought sops, against doing business on the strength of Government support or subsidy.
“Subsidy does not serve any useful purpose. On the other hand, it kills innovation and interest of people. It makes the system uncompetitive.”
On non-performing assets, he said “both the borrower and the lender should discuss the issues in advance, identify the account and treat properly (to tackle NPAs). The economy has not done well and banks have also done some wrong. Banks, the RBI and borrowers should collectively take efforts to address this issue.”