The news report “Banks must not be allowed to trade in commodity derivatives” ( Business Line , January 18) has logically discussed the issue of banks entering the commodity market and has opposed the idea. There is no relation whatsoever between the banking business and trading in commodities, and as stated in the article, the most worrying aspect is the banks ‘finding an opportunity of investing surplus cash'.
It has rightly been stated that it would ‘mean allowing too much money to chase commodities', which would be disastrous in balancing the market pricing of commodities, and would lead to extreme volatility of prices. The result is obvious. Moreover, there is the risk factor which would weigh heavily against the banks entering an area of speculatory processes. There are many bank-related products in which the banks can make a mark. When the government is thinking of providing cash to banks to maintain the cash reserve ratio (CRR), the idea of entering the commodities derivative market is ill-advised.
T. R. Anandan
Coimbatore