Letters

Letters to the editor dated October 12, 2020

| Updated on October 12, 2020 Published on October 12, 2020

Loan moratorium

This is with reference to the editorial ‘Interest on interest’ (October 12). It is true that the lines drawn by the founding fathers of the Constitution separating powers between the legislature, executive and the judiciary are sometimes crossed inadvertently. This is where the courts need to be watchful while hearing the cases related to moratorium on loan repayments of Covid-affected entities. The arguments of petitioners, that charging interest on interest is not justified, are getting more and more divorced from the ground realities of commercial banking.

The RBI, as the banking regulator, is more upset on the Centre filing an affidavit in the court that it will reimburse the loss of about ₹8,000 crore on not charging of interest on interest to the banks. The central bank says that this would vitiate the credit culture. It is a fact that interrupting the virtuous cycle between bank deposits and loan repayments and lending of these funds can escalate systemic risks and shake depositors’ confidence in the already fragile banking system.

TSN Rao

Bhimavaram, AP

No ethical dimension

The RBI is right on both accounts. First, there should not be any further extension of moratorium. And, second, if interest during the six months moratorium is waived, then banks would be in huge distress. Banks are liable to pay interest on the deposits collected from their customers.

This situation should be looked at from the perspective that banks are still not keen on aggressively giving fresh credit despite series of rate cuts by the regulator and if they incur huge losses then it will further delay fresh credit off-take. There is no scope for ethical dimension in this whole issue.

Bal Govind

Noida

The RBI has erred

In hindsight, it is the RBI that has erred by declaring a moratorium for all borrowers. Granting such relief should normally be the responsibility of the executive branch of the government, which should have also funded it. The RBI has made the bigger mistake of not thinking through the consequences of such an announcement and the issue is now in the capable hands of the judiciary. As always, depositors and shareholders of banks have been short-changed by these missteps.

Nandakumar V

Chennai

Central bank as debt manager

Apropos ‘Should RBI be the debt manager of govt?’ (October 12). If Bad Bank is still an active idea, there is no reason why the RBI cannot be the debt manager. Post the 2008 Wall Street crisis, the US Treasury extended $184 billion as bailout/loan to AIG against its sullied toxic assets, and huge sums to other entities as well.

AIG, in just four years, rid itself of the massive bailout, and was back to being publicly owned and turned itself into a leaner, simpler business.

The Government of India is no private enterprise answerable to stockholders. The RBI would need to underwrite the deficit financing, be it by printing notes or trading in government bonds, to raise the kitty. With economic indices looking favourable and a stable government in control, the RBI ought to put in greater trust on the government and count on recouping its investment and also run a profit.

R Narayanan

Navi Mumbai

Fiscal dominance

This basic function gets blurred when the RBI partakes directly in the government’s borrowing programme otherwise known as ‘fiscal dominance’ by the state.

The new MPC board decided to maintain status quo on repo rate though the retail inflation was prevailing at 6.7 per cent well above the comfort zone of 2-6 per cent.

The reason attributed to high inflation was supply-side constraints due to the Covid pandemic and as per a recent policy statement of the RBI, these factors are capable of self-correction.

Except for arresting slow credit growth, for which the RBI supports banks with adequate liquidity and keeps interest rate under control, other factors like infrastructural growth. etc., can be tackled through fiscal stimulus.

Srinivasan Velamur

Chennai

LETTERS TO THE EDITOR Send your letters by email to bleditor@thehindu.co.in or by post to ‘Letters to the Editor’, The Hindu Business Line, Kasturi Buildings, 859-860, Anna Salai, Chennai 600002.

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Published on October 12, 2020
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